Accounting concepts

Chapter One:Chapter One:

IntroductionIntroduction

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.

Basic Book-keeping concepts

The Accounting Entity

or Business Entity

Accounting Period

Monetary Convention

The Going Concern

The Historical Cost

The Accounting EntityOr Business Entity

concept

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.

Accounting Period

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…

1 February 19981 February 1998

??

One month

28 February 28 February

19981998

March May

31 May 31 May

19981998

??

three months

1 March 1 March

19981998

April

Jan. Jun.Mar. Apr. MayFeb.

1 January 1 January

1998199830 June 30 June

19981998

??

six months

89

31 August 199931 August 1999

10 11 12 1 2 3 4 5 6 7

1 September 1 September

19981998

??

One year

Monetary Convention

Click me!

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?

Do you think everything in the

world can be measured in terms of

dollars and cents?

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

Going Concern

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.

All assets owned by the business are assumed to be used into the unknown future.

Hence, we value the assets at historical costs.

Historical Cost

BEFORE 11/9

AFTER 11/9

Market price changes all the time!

Therefore…

All transactions/assets of a business entity are recorded at the original cost price.

Can you still remember the 5 concepts ?

One day, you bought a new handphone Nokia 8310…

You also received an invoice from M1…

You decided to write down what you have spent on a notebook so that you will not forget…

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…

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?…

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? …

Source Documents

(originals)

Books of Prime Entry

(Journal Entries)

Ledgers

Trial Balance

Adjustments

Reports

Can you link??

SUMMARY

What have you learn today?

Any questions?

Do you find POA more interesting now?

Class worksheet to test your understanding.