Assignment on

Principles of Accounting

Submitted By
Asnat Anu 160101-24
Tanzin Sultana 160101-08
Kazi Ummeh Al-Farah 160101-23
Romario Joydhor 160101-02
Iftekhar Ahamed 160101-20

Submitted To
Prof. Parimal Chandra Datta
Adjunct
Notre Dame University Bangladesh
 Father of Accounting

In 1494, the first book on double-entry accounting was published

by Luca Piccioli. Since Piccioli was a Franciscan friar, he might
be referred to simply as Friar Luca. While Friar Luca is regarded
as the "Father of Accounting," he did not invent the system.
Instead, he simply described a method used by merchants in
Venice during the Italian Renaissance period. His system
included most of the accounting cycle as we know it today. The
first accounting book actually was one of five sections in
Piccioli’s mathematics book, titled Summa de Arithmetical,
Geometric, Proportion ET Proportionality (Everything about
Arithmetic, Geometry and Proportions). This section on
accounting served as the world’s only accounting textbook until
well into the 16th century. Accounting practitioners in public
accounting, industry, and not-for-profit organizations, as well as
investors, lending institutions, business firms, and all other users
for financial information are indebted to Luca Piccioli for his
monumental role in the development of accounting.

Definition of Accounting
Accounting is the systematic and comprehensive recording of
financial transactions pertaining to a business. Accounting also
refers to the process of summarizing, analyzing and reporting
these transactions. The financial statements that summarize a
large company's operations, financial position and cash flows
over a particular period are a concise summary of hundreds of
thousands of financial transactions it may have entered into over
this period. Accounting is one of the key functions for almost any
business; it may be handled by a bookkeeper and accountant at
small firms or by sizable finance departments with dozens of
employees at larger companies.

Accounting can be divided into several fields including financial

accounting, management accounting, auditing, and tax
accounting. Accounting information systems are designed to
support accounting functions and related activities. Financial
accounting focuses on the reporting of an organization's financial
information, including the preparation of financial statements, to
external users of the information, such as investors, regulators and
suppliers; and management accounting focuses on the
measurement, analysis and reporting of information for internal
use by management. The recording of financial transactions, so
that summaries of the financials may be presented in financial
reports, is known as bookkeeping, of which double-entry
bookkeeping is the most common system.

Accounting is facilitated by accounting organizations such as

standard-setters, accounting firms and professional bodies.
Financial statements are usually audited by accounting firms, and
are prepared in accordance with generally accepted accounting
principles (GAAP). GAAP is set by various standard-setting
organizations such as the Financial Accounting Standards Board
(FASB) in the United States and the Financial Reporting Council
in the United Kingdom. As of 2012, "all major economies" have
plans to converge towards or adopt the International Financial
Reporting Standards (IFRS).

Activities of Accounting

The three main types of business activities are financing,

investing and operating. These three types of activities all involve
the flow of money, however what the money is for will be the
determinate of which category it belongs in. It is important to
know how to look at each transaction and recognize what type of
activity.

Financing Activities
Financing activities are transactions that are involved with
financing the company and/or individual customer financing. Any
transaction like a loan or anything bought on credit would be this
type. Any monies paid on principle or interest paid would be
considered a financing activity and would go in that section of the
Statement of Cash Flows. Dividends paid to shareholders or the
repurchase of stock would also be considered a financing activity.
Investing Activities
Investing transactions are those that are not part of daily operation
of the company and are used solely for investing purposes. Small
term investments would be considered obviously, but any loans
made to customers or other entities would also be considered an
investing transaction. Dividends and interest earned on
investments would also qualify under the investing category for
Statement of Cash Flows. Purchases of long term investments
such as land, equipment or property will also be viewed as an
investment.

Operating Activities
Operating activities are all the different activities a company will
do in their day-to-day business practices involved with running
the company. This would be anything from paying bills and
employees, to keeping the heat on by paying that bill. Product
cost and delivery cost are also operating activities, expenditures
made to keep the company running. Sales and income from
operations are also put in the operating section of all separating
paperwork.

Users of Accounting Data

The progress and reputation of any business firm is built upon

second financial footing. There are a number of parties who are
interested of accounting information relating to business.
Accounting is the language employed to communicate financial
information of a concern to such parties.
According to Slawin and Reynolds, “Conceptually, accounting is
the discipline that provides on which external and internal users
of the information may base decision that result in the allocation
of economic resource in society ". That is, users of accounting
information may be grouped into two classes, via internal users
and External users.

Internal users (Primary Users) of accounting information

include the following:
•Management: for analyzing the organization's performance and
position and taking appropriate measures to improve the company
results.
•Employees: for assessing company's profitability and its
consequence on their future remuneration and job security.
Owners: for analyzing the viability and profitability of their
investment and determining any future course of action.
Accounting information is presented to internal users usually in
the form of management accounts, budgets, forecasts and
financial statements.

External users (Secondary Users) of accounting

information include the following:
•Creditors: for determining the credit worthiness of the
organization. Terms of credit are set by creditors according to the
assessment of their customers' financial health. Creditors include
suppliers as well as lenders of finance such as banks.
•Tax Authorities: for determining the credibility of the tax returns
filed on behalf of the company.
•Investors: for analyzing the feasibility of investing in the
company. Investors want to make sure they can earn a reasonable
return on their investment before they commit any financial
resources to the company.
•Customers: for assessing the financial position of its suppliers
which is necessary for them to maintain a stable source of supply
in the long term.
•Regulatory Authorities: for ensuring that the company's
disclosure of accounting information is in accordance with the
rules and regulations set in order to protect the interests of the
stakeholders who rely on such information in forming their
decisions.

GAAP

Generally accepted accounting principles (GAAP) are the

standard framework of guidelines for financial accounting used in
any given jurisdiction; generally known as accounting standards
or standard accounting practice. These include the standards,
conventions, and rules that accountants follow in recording and
summarizing and in the preparation of financial statements. Many
businesses choose to "opt out" of GAAP practices as they operate
on a cash basis, as opposed to an accrual basis. A comparison
would be the way that most people balance their checkbooks:
when a check is written, its amount is deducted from the total
balance even though the funds have not yet left the account.
Financial decisions made after the check is written are based on
the balance after the check is deducted.
GAAP is the acronym for generally accepted accounting
principles. In the U.S. that means
1. The basic accounting principles and guidelines such as the cost
principle, matching principle, full disclosure, etc.,
2. The detailed standards and other rules issued by the Financial
Accounting Standards Board (FASB) and its predecessor the
Accounting Principles Board, and
3. Generally accepted industry practices.
GAAP must be adhered to when a company distributes its
financial statements outside of the company. If a corporation's
stock is publicly traded, the financial statements must also adhere
to rules established by the U.S. Securities and Exchange
Commission (SEC). This includes having its financial statements
audited by an independent CPA firm.

Basic Accounting Equation

From the large, multi-national corporation down to the corner

beauty salon, every business transaction will have an effect on a
company's financial position. The financial position of a company
is measured by the following items:
1. Assets (what it owns)
2. Liabilities (what it owes to others)
3. Owner's Equity (the difference between assets and liabilities)
The accounting equation (or basic accounting equation) offers us
a simple way to understand how these three amounts relate to
each other. The accounting equation for a sole proprietorship is:
Assets = Liability + Owner’s Equity
The accounting equation for a corporation is:
Assets = Liability + Stockholder’s Equity

Assets are a company's resources—things the company owns.

Examples of assets include cash, accounts receivable, inventory,
prepaid insurance, investments, land, buildings, equipment, and
goodwill. From the accounting equation, we see that the amount
of assets must equal the combined amount of liabilities plus
owner's (or stockholders') equity.

Liabilities are a company's obligations—amounts the company

owes. Examples of liabilities include notes or loans payable,
accounts payable, salaries and wages payable, interest payable,
and income taxes payable (if the company is a regular
corporation). Liabilities can be viewed in two ways:
(1) As claims by creditors against the company's assets, and
(2) A source—along with owner or stockholder equity—of the
company's assets.

Owner's equity or stockholders' equity is the amount left over

after liabilities are deducted from assets:

Assets - Liabilities = Owner's (or Stockholders') Equity.

Owner's or stockholders' equity also reports the amounts invested
into the company by the owners plus the cumulative net income
of the company that has not been withdrawn or distributed to the
owners.

If a company keeps accurate records, the accounting equation will

always be "in balance," meaning the left side should always equal
the right side. The balance is maintained because every business
transaction affects at least two of a company's accounts. For
example, when a company borrows money from a bank, the
company's assets will increase and its liabilities will increase by
the same amount. When a company purchases inventory for cash,
one asset will increase and one asset will decrease. Because there
are two or more accounts affected by every transaction, the
accounting system is referred to as double-entry accounting.

A company keeps track of all of its transactions by recording

them in accounts in the company's general ledger. Each account
in the general ledger is designated as to its type: asset, liability,
owner's equity, revenue, expense, gain, or loss account.

We created a visual tutorial to demonstrate how a variety of

transactions will affect the accounting equation and the financial
statements. It is available in Accounting Coach PRO along with
exam questions that pertain to the accounting equation.

Assets
Assets are sometimes defined as resources or things of value that
are owned by a company. Some examples of assets which are
obvious and will be reported on a company's balance sheet
include: cash, accounts receivable, inventory, investments, land,
buildings, and equipment. In addition, a company's balance sheet
will also report prepaid expenses as an asset. For instance, if a
company is required to pay its rent at the beginning of each
quarter (January 1, April 1, etc.) the portion that is prepaid (not
used up) as of the balance sheet date will be listed as a current
asset.

A company may state that its employees are its most valuable
asset. However, the employees cannot be included as an asset on
the company's balance sheet. Similarly, a company may have
successfully promoted its products, services and brands
throughout the world and the brands are now the company's most
valuable assets. Yet these brands and trademarks cannot be
reported as assets on the company's balance sheet. (If a company
purchases a brand from another company, the cost can be listed as
an asset on its balance sheet.)

As our examples indicate, the accountant's definition of an asset

has to be somewhat complicated in order to:
Include prepaid expenses, deferred costs, and certain deferred
income taxes, and
Exclude a company's talented team, the patents and trademarks
that were developed internally, and its image and reputation for
excellence at a fair price.
 Liability

A liability is an obligation and it is reported on a company's

balance sheet. A common example of a liability is accounts
payable. Accounts payable arise when a company purchases
goods or services on credit from a supplier. When the company
pays the supplier, the company's accounts payable is reduced.

Other common examples of liabilities include loans payable,

bonds payable, interest payable, wages payable, and income taxes
payable. Less common liabilities are customer deposits and
deferred revenues. Deferred revenues come about when
customers prepay a company for work to be done in a future
accounting period. When the company performs the work, the
liability will be reduced and the company will report the amount
it earned as revenues on its income statement.
Liabilities are also part of the accounting equation: Assets =
Liabilities + Stockholders' Equity. Liabilities are often viewed as
claims on a company's assets. However, liabilities can also be
thought of as a source of a company's assets.

Owner’s Equity

Owner's equity is one of the three main components of a sole

proprietorship's balance sheet and accounting equation. Owner's
equity represents the owner's investment in the business minus the
owner's draws or withdrawals from the business plus the net
income (or minus the net loss) since the business began.
Mathematically, the amount of owner's equity is the amount of
assets minus the amount of liabilities. Since the amounts must
follow the cost principle (and others) the amount of owner's
equity does not represent the current fair market value of the
business.
Owner's equity is viewed as a residual claim on the business
assets because liabilities have a higher claim. Owner's equity can
also be viewed (along with liabilities) as a source of the business
assets.

Financial Statement

A financial statement is a formal record of the financial activities

and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner
and in a form easy to understand. They typically include basic
financial statements.
A balance sheet, also referred to as a statement of financial
position, reports on a company's assets, liabilities, and owners’
equity at a given point in time.
An income statement, also known as a statement of
comprehensive income, statement of revenue & expense, P&L or
profit and loss report, reports on a company's income, expenses,
and profits over a period of time. A profit and loss statement
provides information on the operation of the enterprise. These
include sales and the various expenses incurred during the stated
period.
A Statement of changes in equity, also known as equity
statement or statement of retained earnings, reports on the
changes in equity of the company during the stated period.
A cash flow statement reports on a company's cash flow
activities, particularly its operating, investing and financing
activities.
For large corporations, these statements may be complex and
may include an extensive set of footnotes to the financial
statements and management discussion and analysis. The notes
typically describe each item on the balance sheet, income
statement and cash flow statement in further detail. Notes to
financial statements are considered an integral part of the
financial statements.

IASB and IFRS

The International Accounting Standards Board (IASB) is an inde-

pendent, private-sector body that develops and approves
International Financial Reporting Standards (IFRSs). The IASB
operates under the oversight of the IFRS Foundation. The IASB
was formed in 2001 to replace the International Accounting
Standards Committee.
Currently, the IASB has 14 members.
The IASB's role
 Under the IFRS Foundation Constitution, the IASB has complete
responsibility for all technical matters of the IFRS Foundation
including:
Full discretion in developing and pursuing its technical agenda,
subject to certain consultation requirements with the Trustees and
the public
The preparation and issuing of IFRSs (other than Interpretations)
and exposure drafts, following the due process stipulated in the
Constitution
The approval and issuing of Interpretations developed by the
IFRS Interpretations Committee.

On the other hand, International Financial Reporting Standards

(IFRS) is a set of accounting standards developed by an
independent, not-for-profit organization called the International
Accounting Standards Board (IASB).
The goal of IFRS is to provide a global framework for how public
companies prepare and disclose their financial statements. IFRS
provides general guidance for the preparation of financial
statements, rather than setting rules for industry-specific
reporting.
Having an international standard is especially important for large
companies that have subsidiaries in different countries. Adopting
a single set of world-wide standards will simplify accounting
procedures by allowing a company to use one reporting language
throughout. A single standard will also provide investors and
auditors with a cohesive view of finances.
Currently, over 100 countries permit or require IFRS for public
companies, with more countries expected to transition to IFRS by
2015. Proponents of IFRS as an international standard maintain
that the cost of implementing IFRS could be offset by the
potential for compliance to improve credit ratings.

IFRS is sometimes confused with IAS (International Accounting

Standards), which are older standards that IFRS has replaced.

Conclusion

In the conclusion of the above discussions, we agree that the

accounting professions is indeed expanding in new into roles,,
diverging from the traditional role of financial accounting
auditing as posed in the assigned question. This is largely due to
the changing global trade situation, with increased financial
activity and new developments in the accountancy field (Chau,
2008). Survey commissioned by Parquets (2008) supports this
statement, suggesting accountants are increasingly asked to offer
more comprehensive solutions and be expert in areas outside the
normal comfort zones, 70% of accounting firms will provide
more tax planning services, which 60% will provide business
management and advisory services. Accountants in current times
should also consider the impact of business activities on society
and the environment, and be alert to ethics, social responsibility
and sustainability (Chau, 2008). This further strengthens the view
that accounts are also increasingly taking on managerial and
leadership responsibility (CGA, 2008).