Download - Accounting concepts
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Chapter One:Chapter One:
IntroductionIntroduction
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ObjectivesObjectives
At the end of the lesson, students should be able to :
• explain the concepts of Accounting Entity,
Accounting Period, Monetary Convention,
Going Concern and Historical Cost.
• know the Accounting Cycle.
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Basic Book-keeping concepts
The Accounting Entity
or Business Entity
Accounting Period
Monetary Convention
The Going Concern
The Historical Cost
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The Accounting EntityOr Business Entity
concept
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The business exists as a unit by itself.
It is separated from its owner.
Only transactions and events related to the business are recorded in the business books.
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Accounting Period
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The life of a business is divided into many equal and fixed periods of time. Eg one year
Similar to your parents’ monthly salary income & expenses…
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1 February 19981 February 1998
??
One month
28 February 28 February
19981998
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March May
31 May 31 May
19981998
??
three months
1 March 1 March
19981998
April
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Jan. Jun.Mar. Apr. MayFeb.
1 January 1 January
1998199830 June 30 June
19981998
??
six months
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89
31 August 199931 August 1999
10 11 12 1 2 3 4 5 6 7
1 September 1 September
19981998
??
One year
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Monetary Convention
Click me!
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Can you tell me…
• How much is your health worth?
• If I want to buy your attitude, how much
should I pay you?
• Can I buy laziness from you?
How much are you willing to sell?
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Do you think everything in the
world can be measured in terms of
dollars and cents?
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Therefore,Therefore, ONLY MONEY ONLY MONEY is used is used as the basic measuring unit for as the basic measuring unit for
financial reportingfinancial reporting
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Going Concern
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Imagine you just set up a new company.
Do you think you want to sell off your business next year? Why not?
Assumption: The business entity will continue to operate and it will not close down.
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All assets owned by the business are assumed to be used into the unknown future.
Hence, we value the assets at historical costs.
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Historical Cost
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BEFORE 11/9
AFTER 11/9
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Market price changes all the time!
Therefore…
All transactions/assets of a business entity are recorded at the original cost price.
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Can you still remember the 5 concepts ?
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One day, you bought a new handphone Nokia 8310…
You also received an invoice from M1…
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You decided to write down what you have spent on a notebook so that you will not forget…
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To record every different expenses on your notebook seem very messy to you, so you decided to keep a notebook for hobbies, books & stationery, food & transport etc…
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Income Expense
$ $
Pocket money received 140
Hobbies 20
Food & Transport 70
Books & Stationery 10
Sports & Recreation 15
Handphone bill 20
Left* 5
140 140
You want to see if your records are correct at the end of the month… Did you forget to record anything?…
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At the end of the month, you added up all your pocket money received and the total amount of money spent. Did you overspent on your hobbies? Do you have some money to save for the month? How much money do you have left at the end? Should you cut down on your expenses next month? …
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Source Documents
(originals)
Books of Prime Entry
(Journal Entries)
Ledgers
Trial Balance
Adjustments
Reports
Can you link??
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SUMMARY
What have you learn today?
Any questions?
Do you find POA more interesting now?
Class worksheet to test your understanding.