ACCOUNTING SYSTEM Accounting theory PowerPoint Presentation, PPT - DocSlides

ACCOUNTING SYSTEM

Accounting theory

ACCOUNTING

AN ECONOMIC DEVELOPMENT

ACCUSER

OF ACCOUNTING INFORMATION

OUTING

AS AN A INFORMATION SYSTEM

FACTORES INFLUENCING ACCOUNTING ENVIRONMENT

ACCOUNTING STANDERDS

ACCOUNTING PRINCIPLE

GAP CONVENTION AND CONCEPTS

ADVANCE TREATMENT IN FINAL ACCOUNT

Definition of Accounting

Accounting is the art of recording, classifying and summarizing in a in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial characters and interpreting the results thereof.

Accounting as an information system

The term system may be defined set of elements which operate together in order to attain a goal. A system does not consist of random sets of elements But, element which may be identified as belonging together because of a common goal. A system contains

1.Input

2.Proccesing of input

3.Output

A business organization is regarded as an open system which has a dynamic interplay with it’s environment from which it draws resources and to which it consigns it’s product an services.

Uses of Accounting information

Management or manager

Users with direct financial interest

Users with indirect financial interest

Accounting provides information about the activity of an entity to various individuals or a groups for their use in making informed judgments and decisions. The user of accounting information can be broadly divided into three categories

Factors influencing financial environment

Accounting profession and institution structure

Corporate financing system

.

Economic and Social factors

Legal and statutory requirement

Accounting and economic development

Capital although scarce, is needed for the economy development of a country. An efficient capital market helps the investors and capital provides in getting information about investment opportunity.

The following are the consequence emerge

The individual investors is reduced to financing his or her project out of their proper savings.

The individual investors may shun risky investment and investment with long term pay of

There is a lack of communication between the manager and the share holders leading the potential investors to be unsure of the price to pay and of quality of the security.

The security price is the composed into fundamental value and noise

.

GAAP convention

The

P

hrase “Generally Accepted Accounting Principle” is a technical accounting term that encompasses the convention rules and procedures necessary to defined accepted accounting practices at a particular point in time.

Accounting principle board of USA states “GAAP incorporate the consensus at a particular time as to which economic resources and obligations should be recorded as assets and liabilities by financial accounting.

Accounting principles

GAAP are primarily relevant to financial accounting. The consideration which guide the selection of accounting principles for financial reporting purposes as follows

Accurate presentation

Conservatism

Profit maximization

Income smoothing

MODULE 2:Revenue recognition and measurement

Definition of Revenue

Revenue result from the sale of goods and the rendering of services and is measure bye the charge made to customers, clients and tenants for goods and services furnishes to them to it also include gains from the sale or exchange of assets interest and dividends earn on investment

.

REVENUE RECOGNISATION AND MEASUREMENT

Revenue is measured in terms of the value of the products or services exchanged and is the amount that customers are reasonably certain to pay. In order to determine the amount likely to be paid by customers and to be recognized as revenue , some adjustments shall be made in the gross sales value of the goods and services sold

.

Following are the measurement of revenue recognized

:-

1.Discounts:

Discounts may be generally of two types-trade discount and cash discount. Trade discounts are used in determining the invoice prices, actual selling price from published catalogs or list price, say list price less 30 percent.

2.Sale returns and allowances:

some times the purchase return a part of goods purchased to the seller if they are dissatisfied with the goods.

It should be noted that sales returns and allowances deducted from the gross sales of a period may not relate totally to the actual sales of that period.

3.Bad Debts:

Some customers usually do not make payments and the firm incurs a bad debt expenses. Bad debts are expenses is classified as a selling expense on the profit and loss account.

4.Revenue measurement in non-cash Transactions

:

If a sale involves a non-cash transactions or non cash assets, such as the trade in of an old car for a new car act.

REVENUE RECOGNITION CRITERIA

It is generally accepted that revenue is earned through out all stages of the operating cycle.

Following are criteria for revenue recognition:-

1.Revenue recognized at the point of sale.

2.Revenue recognition in sale of services.

3.Revenue recognition in construction work

AS-9 ON DISCLOSURE RELATING TO REVENUE RECOGNITION

1.Revenue from sales or service transactions should be recognized when the requirements as to performance set out in points 2 n 3 below are satisfied, provided tha

t

the time of performance.

2.In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled.

3.Revenue arising from the use by other of enterprises resources yielding interest, royalties and dividends should only be recognized when no significant uncertainty as to measurability exists.

Module:3. Depreciation Accounting Policy

AS.6 On Depreciation

The ICAI has issued accounting standards in august In1994 on depreciation and this has been made mandatory in respect of accounts for periods commencing on or after 1-4-1995.This standards deals with depreciation accounting applies to all depreciable assets, Except the following items to which special consideration applies.

Forests, plantation and similar regenerative natural recourses

Expenditure on research and development

Goodwill

Livestock

Factors influencing the selection of depreciation method

There are several methods of allocating depreciation over the useful life of the assets.

The following factors influence the selection of depreciation method.

Legal provision

Financial reporting

Effect on managerial decisions

Inflation

Technology

Capital maintenance

Module:5. Concept of financial reporting

Qualitative characteristics of financial reporting information

Qualitative characteristics are the attributes that make the information provided in financial statement useful to users. The four principle qualitative characteristics are understandability, relevance, reliability and comparability

1.Understandability:

An essential quality of the information provided in financial statements is that it is readily understandable by users

2.

Relevance:

To be useful in formation must be relevant to the decision making needs of users. Information has the quality of relevance when it influence the economic decision of users by helping them evaluate past, present or a feature events or conforming or correcting, there past evaluation

3. Reliability:

To be useful information must also be reliable. Information has the quality of reliability when it is freeform material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or cloud reasonably be expected to represent.

3. Comparability;

Users must be able to compare the financial statement of and enterprise through time in order to identify trends in its financial position and performance

.

THANK YOU

THANK YOU