1

ACC 100 : INTRODUCTORY ACCOUNTING

TOPIC ONE:
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
2
TOPIC 1: INTRODUCTION
TOPIC ONE CONTENTS
i. Meaning and purpose of Book-keeping
ii. The origin, purpose and role of accounting.
iii. Difference between bookkeeping and
accounting
iv. Objectives of accounting and bookkeeping
v. Accounting concepts
vi. IASB framework
vii. Users of accounting information
viii. Importance of accountancy to a society

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 ACC 100 : INTRODUCTORY ACCOUNTING
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TOPIC 1: INTRODUCTION
WHAT IS BOOK-KEEPING?
Book-keeping is defined as an art of recording
of recording business financial transaction in
sets of accounts in terms of or money's worth.
Book-keeping
is mainly concerned with recording of financial
data relating to the business operations in a
significant and orderly manner.
It is concerned with the permanent record of all
transactions in a systematic manner to show its
financial effect on the business.
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 ACC 100 : INTRODUCTORY ACCOUNTING
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TOPIC 1: INTRODUCTION
WHAT IS AN ACCOUNTING?
An Accounting: The definition given by the
American Institute of Certified Public
Accountants (‘AICPA’) clearly brings out the
meaning of accounting.
According to it, accounting is “the art of
recording, classifying, analyzing and
summarizing and reporting financial
information for the purpose of report the
result of the business.

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 ACC 100 : INTRODUCTORY ACCOUNTING
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TOPIC 1: INTRODUCTION
WHAT IS AN ACCOUNTING?
Therefore Accounting: is the process;
Accountancy is “the discipline (the name of
the subject) and an Accountant is a person
with the knowledge of accountancy and
practicing ( doing the work of accounting).

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 ACC 100 : INTRODUCTORY ACCOUNTING
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TOPIC 1: INTRODUCTION
Book-Keeping and Accounting?
Book-keeping and accounting are often used
interchangeably but they are different from each other.
Accounting is a broader and more analytical subject. It
includes the design of accounting systems which the book-
keepers use, preparation of financial statements, audits,
cost studies, income-tax work and analysis and
interpretation of accounting information for internal and
external end-users as an aid to making business decisions.
This work requires more skill, experience and imagination.
The larger the firm, the greater is the responsibility of the
accountant. It can be said that accounting begins where
book-keeping ends. Bookkeeping provides the basis for
accounting.
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
7 The difference between Book-Keeping
and Accounting
Basis of Distinction Book-keeping Accounting
It is not only recording and
Recording and maintenance of books of
maintenanceof books accounts but also includes
1. Scope of accounts. analysis, interpreting and
2. Stage Primary stage. Secondary stage.
To maintain
systematic records of To ascertain the net result of the
3. Objective business transactions. business operation.
Often routine and Analytical and executive in
4. Nature clerical in nature. nature.
A book-keeper is
responsible for
recording business An accountant is also responsible
5. Responsibility transactions. for the work of a book-keeper.
The book-keeper does
not supervise and An accountant supervises and
check the work of an checks the work of the book-
6. Supervision Accountant. keeper.
Work is done by the
junior involved staff of Senior staff performs the
7. involved staff the organisation. accounting work.
 ACC 100 : INTRODUCTORY ACCOUNTING
8 Objectives of Book-Keeping and
Accounting
(i) Keeping Systematic Records:
Accounting is done to keep a systematic record of
financial transactions.
(ii) Protecting and Controlling Business Properties:
Accounting helps to see that there is no unauthorized
use or disposal of any assets or property belonging to
the firm, because proper records are maintained.
Accounting will furnish information about money due
from various persons and money due to various
parties. The firm can see that all amounts due to it are
recovered in due time and that no
amount is paid unnecessarily.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
9 Objectives of Book-Keeping and
Accounting
(iii) Facilitating Rational Decision Making:
Accounting facilitates collection, analysis and reporting of
information at the required point of time to the required levels
of authority in order to facilitate rational decision making.
(iv) Ascertaining the Operational Profit/Loss:
Accounting helps to determine the results of the activities in a
given period, usually a year, i.e. to show how much profit has
been earned or how much loss has been incurred.
(v) Ascertaining the Financial Position of the Business:
Balance sheet is prepared to ascertain the financial position of
the firm at the end of a particular period. It shows the values of
the assets and the liabilities of the business entity

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 ACC 100 : INTRODUCTORY ACCOUNTING
10 Advantages of Book-Keeping and
Accounting
(i) Maintenance of Business Records:
All financial transactions are recorded in a systematic manner in
the books of accounts so that there is no need to depend upon on
memory. It is impossible to remember the business transactions
which have grown in size and complexity.
(ii) Preparation of Financial Statements:
Proper recording of transactions facilitates the preparation of
financial statements i.e. the trading and profit and loss account
and balance sheet.
(iii) Comparison of Results:
Accounting information when properly recorded can be used to
compare the results of one year with those of earlier years so
that the significant changes can be analyzed.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
11 Advantages of Book-Keeping and
Accounting
(iv) Decision Making:
Accounting information helps the management to plan its future
activities by preparing budgets and coordination of various
activities in different departments.
(v) Evidence in Legal Matters:
Properly recorded accounting information can be produced as
evidence in a court of law.
(vi) Provides Information to Interested Parties:
Interested parties like owners, creditors, management,
employees, customers, government, etc. can get financial
information about the organization.
(vii) Helps in Taxation Matters:
Income tax and/sales tax authorities depend for taxation matter
on the accounts maintained by the business.

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 ACC 100 : INTRODUCTORY ACCOUNTING
12 Terms used Book-Keeping and
Accounting
Transaction:
Are activities that make money move from person to
another.
Transactions are those activities of a business, which
involve transfer of money or goods or services
between two persons or two accounts.
For example, purchase of goods, sale of goods, borrowing from
bank, lending of money, salaries paid, rent paid, commission
received and dividend received.
Transactions are of two types, namely,
1. cash transactions.
2. and credit transactions.

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 ACC 100 : INTRODUCTORY ACCOUNTING
13 Terms used Book-Keeping and
Accounting
Cash transaction :
Transactions are those activities of a business that make
immediate transfer of money from one person to another.
Are transactions which involve transfer of money or goods or
services between two persons or two accounts.
For example,
When George buys goods from Khamis paying the price of
goods by cash immediately, it is a cash transaction.

Credit transaction :
Transactions are those activities of a business that
does not make immediate transfer of money from one
person to another. Money are paid later.

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 ACC 100 : INTRODUCTORY ACCOUNTING
14 Terms used Book-Keeping and
Accounting
Proprietor:
A person who owns a business is called its
proprietor. He contributes capital to the
business with the intention of earning profit.

Capital:
It is the amount invested by the proprietor/s
in the business. This amount is increased by
the amount of profits earned and the amount
of additional capital introduced.

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 ACC 100 : INTRODUCTORY ACCOUNTING
15 Terms used Book-Keeping and
Accounting
Drawings:
It is the amount of cash or value of goods
taken from the business by the proprietor for
his personal use. It is deducted from the
capital.

Liabilities:
Liabilities refer to the financial obligations of a
business. These denote the amounts which a
business owes to others, e.g., loans from banks or
other persons, creditors for goods supplied, bills
payable, outstanding expenses, bank overdraft etc..
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 ACC 100 : INTRODUCTORY ACCOUNTING
16 Terms used Book-Keeping and
Accounting
Assets:
Asset is a resource controlled by the entity as
a result of past events and from which future
economic benefits are expected to flow to the
entity and its value can be measured
objectively (IASB Framework).

Assets can classified in two ways:

1. Tangible and intangible assets
2. Current and non current assets

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 ACC 100 : INTRODUCTORY ACCOUNTING
17 Terms used Book-Keeping and
Accounting
Tangible Assets:
These assets are those having physical
existence. It can be seen and touched. For
example, plant & machinery, cash, etc…
Intangible Assets:
are those assets having no physical existence
but their possession gives rise to some rights
and benefits to the owner. It cannot be seen
and touched. Goodwill, patents, trademarks
are some of the examples.

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 ACC 100 : INTRODUCTORY ACCOUNTING
18 Terms used Book-Keeping and
Accounting
Current Assets:
are those assets that are expected to be used
(sold or consumed) within 12 months.
(according to the IFRS)
Non current Assets:
are those assets is not to be converted to cash within
12 months of the balance sheet date, and is not
expected to be consumed or sold within the normal
operating cycle of a firm (in contrast to current
assets). Non-current assets are formally defined as
anything not classified as a current asset.

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 ACC 100 : INTRODUCTORY ACCOUNTING
19 Terms used Book-Keeping and
Accounting
Goods:
Are item for sale at given period.
are materials or item for sale that satisfy human
wants and provide utility.
Goods that are tangible property, and services, which
are non-physical.
Stock:
Stock includes goods unsold on a particular date.
Stock may be opening and closing stock. The term
opening stock means goods unsold in the beginning of
the accounting period.
Whereas the term closing stock includes goods unsold
at the end of the accounting period.
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 ACC 100 : INTRODUCTORY ACCOUNTING
20 Terms used Book-Keeping and
Accounting
Debtors:
Is a person (individual or firm) who receives a
benefit without giving money or money’s worth
immediately, but liable to pay in future or in due
course of time. The debtors are shown as an
current asset in the balance sheet.
Creditors:
A person who gives a benefit without receiving
money or money’s worth immediately but to
claim in future, is a creditor. The creditors are
shown as a liability in the balance sheet.

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 ACC 100 : INTRODUCTORY ACCOUNTING
21 Terms used Book-Keeping and
Accounting
Purchases:
Purchases refers to the amount of goods bought by a
business for resale or for use in the production.
Goods purchased for cash are called cash purchases. If
it is purchased on credit, it is called as credit
purchases. Total purchases include both cash and
credit purchases.
Purchases Return or Returns Outward:
When goods are returned to the suppliers due to
defective quality or not as per the terms of purchase,
it is called as purchases return.
To find net purchases, purchases return is deducted
from the total purchases.
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 ACC 100 : INTRODUCTORY ACCOUNTING
22 Terms used Book-Keeping and
Accounting
Sales:
Sales refers to the amount of goods sold that are
already bought or manufactured by the business.
When goods are sold for cash, they are cash sales but
if goods are sold and payment is not received at the
time of sale, it is credit sales. Total sales includes both
cash and credit sales.
Sales Return or Returns Inward:
When goods are returned from the customers due to
defective quality or not as per the terms of sale, it is
called sales return or returns inward. To find out net
sales, sales return is deducted from total sales.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
23 Terms used Book-Keeping and
Accounting
Revenue:
Revenue means the amount receivable or realized
from sale of goods and earnings from interest,
dividend, commission, etc..
Expense:
It is the amount spent in order to produce and sell the
goods and services. For example, purchase of raw
materials, payment of salaries, wages, etc..
Income:
Income is the difference between revenue and
expense.

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 ACC 100 : INTRODUCTORY ACCOUNTING
24
Source Documents
Source Documents
are the evidences of business transactions which provide
information about the nature of the transaction, the
date, the amount and the parties involved in it.
These supporting documents are the written and
authentic proof of the correctness of the recorded
transactions. These documents are required for audit
and tax assessment. They also serve as the legal
evidence in case of a dispute.
Receipt:
Receipt is an acknowledgement for cash received. It is
issued to the party paying cash. Receipts form the
basis for entries in cash book.
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Source Documents
Voucher:
It is a written document in support of a transaction. It
is a proof that a particular transaction has taken place
for the value stated in the voucher. It may be in the
form of cash receipt, invoice, cash memo, bank pay-in-
slip etc.Voucher is necessary to audit the accounts.
Invoice:
Invoice is a business document which is prepared
when one sell goods to another. The document is
prepared by the seller of goods. It contains the
information relating to name and address of the seller
and the buyer, the date of sale and the clear
description of goods with quantity and price.
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 ACC 100 : INTRODUCTORY ACCOUNTING
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Source Documents
Cash Memo:
Is a notification owned to trader when a trader sells
goods for cash. It provide details regarding the items,
quantity, rate and the price
Debit Note:
Is a document prepared by the buyer and it contains
the details of the goods returned, name of the supplier
and reasons for returning the goods. Each debit note is
serially numbered. A duplicate copy or counter foil of
the debit note is retained by the buyer. On the basis of
debit note, the suppliers account is debited in the
books.

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 ACC 100 : INTRODUCTORY ACCOUNTING
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Source Documents
Cash Memo:
Is a notification owned to trader when a trader sells
goods for cash. It provide details regarding the items,
quantity, rate and the price
Debit Note:
Is a document prepared by the buyer and it contains
the details of the goods returned, name of the supplier
and reasons for returning the goods. Each debit note is
serially numbered. A duplicate copy or counter foil of
the debit note is retained by the buyer. On the basis of
debit note, the suppliers account is debited in the
books.

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 ACC 100 : INTRODUCTORY ACCOUNTING
28
Source Documents
Credit Note:
is a document prepared by the seller and it contains
the details of goods are returned, name of the
customer, amount of such goods and reasons for
returning the goods. Each credit note is serially
numbered. A duplicate copy of the credit note is
retained for the record purpose. On the basis of credit
note, the customer’s account is credited in the books.
Pay-in-slip:
is a form available in banks and is used to deposit
money into a bank account. Each pay-in-slip has a
counterfoil which is returned to the depositor duly
sealed and signed by the bank official.
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Books of accounts
Account:
Account is a summary of relevant business
transactions at one place relating to a person, asset,
expense or revenue named in the heading. An account
is a brief history of financial transactions of a
particular person or item. An account has two sides
called debit side and credit side.
Ledger:
Is a main book of accounting which various accounts
of personal, real and nominal nature, are opened and
maintained

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 ACC 100 : INTRODUCTORY ACCOUNTING
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Books of accounts
Ledger account:
Are account opened and maintained in the ledger as a
summary statement of all the transactions relating to
a person, asset, expense, or income or gain or loss
which have taken place during a specified period and
shows their net effect ultimately

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 ACC 100 : INTRODUCTORY ACCOUNTING
31
Traditional classification of accounts

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Traditional classification of accounts
Personal accounts:
These are accounts for individual (Natural persons
people like Musa and Neema) and artificial persons
like institution that enjoys the personality under the
eye of the law.
A few examples of personal accounts include
debtors, creditors, banks name, outstanding and
prepaid accounts, accounts of credit customers,
and suppliers, capital, drawings, etc.
Personal accounts can be categorized into three types
1. Natural personal
2. artificial personal
3. Groups/Representative personal Accounts
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 ACC 100 : INTRODUCTORY ACCOUNTING
33
Traditional classification of accounts
1. Natural persons:
An account recording transactions of an individual
human being is termed as a natural persons account.
2. Artificial persons:
An account recording financial transactions with
personal account, e.g. Firm`s accounts, limited
companies 'accounts, educational institutions'
accounts, Co-operative society accounts.
3. Groups/ Representative personal Accounts
An account indirectly representing a person or
persons is known as representative personal account.
For example: prepaid and outstanding expenses like
insurance, salaries, etc..
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 ACC 100 : INTRODUCTORY ACCOUNTING
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Traditional classification of accounts
Impersonal accounts:
Accounts which are not held in the name of
the persons or are not directly related to the
customers or suppliers of a business.

impersonal account, being classified as either a

real account, in which property (assets) is
recorded, or a nominal account, in which
income, expenses and capital are recorded.

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 ACC 100 : INTRODUCTORY ACCOUNTING
35
Traditional classification of accounts
Real account :
is an account that retains and rolls forward its ending
balance from period to period.
Real accounts are not listed in the income statement
Real accounts also include contra asset, contra
liability, and contra equity accounts, since these
accounts retain their balances beyond the current
fiscal year.
To distinguish between personal real; real accounts
are assets accounts that retains and rolls forward its
ending balance from period to period.

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 ACC 100 : INTRODUCTORY ACCOUNTING
36
Traditional classification of accounts
Nominal account :
Are accounts which related to expenses, losses,
incomes or gains. The dictionary meaning of the word
“nominal” is “existing in name only” and the meaning
remains absolutely true in accounting sense too,
because nominal accounts do not really exist in
physical form, but behind every nominal account
money is involved. E.g. Purchase A/C, Salary A/C, Sales
A/C, Commission received A/C, etc.
All of the balances in the revenue, expense, gain, and loss
accounts (known as nominal or temporary accounts) listed
in the income statement are flushed out to retained
earnings at the end of each fiscal year, resulting in zero
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 ACC 100 : INTRODUCTORY ACCOUNTING
37
Traditional classification of accounts
Un answered question is purchases
and sales nominal or real account:
Purchases and Sales can be treated as either nominal
accounts or real accounts.
Nominal : GOLDEN RULE "Debit all expenses and
losses; Credit all incomes and gains."
Purchase-expense-debit
Sales-income-credit.
Real: GOLDEN RULE "Debit what comes in; Credit
what goes out"
Purchase- goods come in -debit
Sales- goods go out - credit
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 ACC 100 : INTRODUCTORY ACCOUNTING
38
Traditional classification of accounts

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Traditional classification of accounts

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Modern approach classification of accounts

According to modern approach, the accounts are

classified as asset accounts, liability accounts, capital or
owner’s equity accounts, withdrawal accounts,
revenue/income accounts and expense accounts.
Asset accounts:
Are accounts for things or items of value owned by a
business and are usually divided into tangible or
intangible.
liability accounts:
Are accounts for financial obligations or debts payable to
outsiders or creditors

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 ACC 100 : INTRODUCTORY ACCOUNTING
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Modern approach classification of accounts

Capital or owner’s equity accounts:

Capital is the owner’s claim against the assets of the
business and is equal to total assets less all liabilities to
external parties. The balance in capital account increases
with the introduction of new capital and profits earned by
the business and decreases as a result of withdrawals and
losses sustained by the business.
Withdrawal accounts::
Withdrawals are cash or assets taken by a business owner
for his personal use. In sole proprietorship and
partnership, an account titled as drawings account is used
to account for all withdrawals
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Modern approach classification of accounts

Revenue or income accounts:

Revenue is the inflow of cash as a result of primary
activities such as provision of services or sale of goods. The
term income usually refers to the net profit of the
business derived by deducting all expenses from revenue
generated during a particular period of time.
Expense accounts
Any resource expended or service consumed to generate
revenue is known as expense. Examples of expenses
include salaries expense, rent expense, wages expense,
supplies expense, electricity expense, telephone expense,
depreciation expense and miscellaneous expense.
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 ACC 100 : INTRODUCTORY ACCOUNTING
43
Classification of accounts

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Classification of accounts

Classify the
following as
either real,
personal or
nominal

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 ACC 100 : INTRODUCTORY ACCOUNTING
45
Classification of accounts

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 ACC 100 : INTRODUCTORY ACCOUNTING
46
Classification of accounts

Classify the
following as
either real,
personal or
nominal

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47
Classification of accounts

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
48 The origin of Book-Keeping and
Accounting
The origin and Evolution of Accounting:
The origin of book-keeping and accounting has long
history back in Mesopotamia (IRAQ), a between 450
and 500 BC. (Keistar, 1965); in Greece (in times
alexander the great) and Rome (in times Augustus
Caesar) about 630 BC (Chatfield, 1977);

The early Greeks and Roman accounts were kept

under "charge" and "discharge" principle, comparable
to modern day receipt and payment account, (James
1955)

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 ACC 100 : INTRODUCTORY ACCOUNTING
49 The origin of Book-Keeping and
Accounting
USE OF DOUBLE ENTRY SYSTEM BETWEEN
THIRTEENTH AND FOURTEENTH CENTURIES
in 1494, the further of accountancy and book-
keeping Luca Pacioli on his printed work or treatise was
on algebra, titled: "Summa de Arithmatica, Geometrica,
Proportioni et proportionalita (i.e. everything about
Mathematics, geometry, and proportions)". double entry
system of recording was introduced to ensure that every
transaction has equal and opposite reaction, (Mike &
Fred,1983).
The double entry system requires both positive (+) and
negative (-) entries (+) in assets and liabilities to be
recorded, (Paul, 1985 and Nwoko 1990)
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
50 The origin of Book-Keeping and
Accounting
USE OF DOUBLE ENTRY SYSTEM BETWEEN
THIRTEENTH AND FOURTEENTH CENTURIES
The Latin words Dare (to give) negative (-) entries in
English as Credit (Cr); and
Avere (to receive) positive (+) entries in English have to
recorded.

In 1942 The Institute of Chartered Accountants in

England and Wales introduced THE GENERAL
ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

GAAP is a collection of commonly-followed accounting

rules and standards for financial reporting.
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51
General Accepted Accounting Principles
GAAP (generally accepted accounting principles)
GAAP is a collection of commonly-followed accounting
rules, procedures and standards for financial reporting
GAAP specifications include definitions of concepts and
principles, as well as industry-specific rules. The purpose of
GAAP is to ensure that financial reporting is transparent
and consistent from one organization to another.
GAAP includes Accounting conversion,
accounting assumption and quality of good
consideration

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General Accepted Accounting Principles
History of GAAP
Generally Accepted Accounting Principles were as a
response to the Stock Market Crash of 1929 and the
subsequent Great Depression, which were believed to be
at least partially caused by less than forthright financial
reporting practices by some publicly-traded companies.
The federal government of US. began working with
professional accounting groups to establish standards and
practices for consistent and accurate financial reporting.
The US GAAP were developed jointly by the Financial
Accounting Standards Board (FASB) and the
Governmental Accounting Standards Board (GASB)

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General Accepted Accounting Principles
Accounting convention constitute the basis for
development of accountancy practice and
procedures
Accounting assumptions are underlying
assumptions in preparing and presenting books of
accounts and financial statement
Quality of good consideration are character
displayed by books of accounts and binding
preparer of financial information to be objective
and integrity

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54
General Accepted Accounting Principles

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General Accepted Accounting Principles
Separate Entity (Business entity) Concept:
According to this concept, also known as business entity
concept, business is treated as a separate unit or entity
from its owners. This concept implies that a business is
separate and distinct from the persons who supplied
capital to it.
Going Concern Concept:
This concept assumes that a business entity will continue
to operate indefinitely and that it will not be liquidated in
the immediate future and the financial statements are
prepared on this assumption.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
56
General Accepted Accounting Principles
Money Measurement (Monetary) Concept::
This concept states that only those transactions which can
be expressed in money terms are recorded in accounting
though their quantitative records may also be kept.
Thus means that all business transactions are expressed
only in money. Thus, transactions which cannot be
expressed in money will not be recorded in accounting
books however important they may be.
Accounting Period (Periodical) Concept::
This concept assumes that a business entity will continue
to operate indefinitely and that it will not be liquidated in
the immediate future and the financial statements are
prepared on this assumption.
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
57
General Accepted Accounting Principles
Dual Aspect (Accounting Equation) Concept:
This is the basic concept of accounting and provides the
very basis of recording transactions in the books of
accounts. There must be a double entry for each business
transaction, an entry being made in the receiving account
and an entry of the same amount in the giving account
and they should balance.
The ‘accounting equation’ (i.e. Assets = Capital +
Liabilities) is based upon the dual aspect concept and that
is why this concept is also called as accounting equations
concept.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
58
General Accepted Accounting Principles
Accrual Concept :
The concept require revenue to recognized in books of
account when it is earned not when received expenses to
be recognized when it is incurred not when paid.
Thus, to ascertain correct profit or loss for an accounting
period we must take into account all expenses and
incomes relating to the accounting period whether actual
cash has been paid or received or not.
It is because of this concept that outstanding expenses
and accrued incomes are taken into account.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
59
General Accepted Accounting Principles
Matching Concept:
The concept require relate revenue and expenses of
the related period. This concept requires that the
expenses of a period must be matched with the
revenues of that period for the ascertainment of the
profit earned or loss suffered by the enterprise during
that period.
Matching concept is of great significance since the
performance of a business enterprise in usually
measured in terms of revenue earned not that
received and by the expenses incurred not that paid
by the enterprise.
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
60
General Accepted Accounting Principles
Quality of Good Consideration
Materiality:
For quality consideration, accountant should record
transactions of which is worthwhile .
Certain items like stamp pad ink pencil etc are
usually cheap and they last long before they are
used up.
Prudence:
Accountants have take caution when dealing with issues
of estimation and valuation. e.g in predicting doubtful
debt, valuation of assets etc.. (better anticipating losses).

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
61
General Accepted Accounting Principles
Quality of Good Consideration
Disclosure:
should be “full”, “fair” and “adequate” disclosure of
benefits from business activities and all it`s related
aspects.
The results of the business have to be disclosed
from time to time to the shareholders and
creditors, government, employees etc.; Care should
be taken to disclose all material information.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
62
General Accepted Accounting Principles
Quality of Good Consideration
Disclosure:
should be “full”, “fair” and “adequate” disclosure of
benefits from business activities and all it`s related
aspects.
The results of the business have to be disclosed
from time to time to the shareholders and
creditors, government, employees etc.; Care should
be taken to disclose all material information.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
63
General Accepted Accounting Principles
Quality of Good Consideration
Consistency:
It means that business concern should follow
uniform accounting methods for all years. This is
useful as and when the businessman wants to
compare the present year performance with that of
last year or with different firms.
similar economic events should be recorded
and reported in a consistent manner from period to
period. It implies that the same accounting
procedure will be applied similar items over time.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
64
General Accepted Accounting Principles
Quality of Good Consideration
Objectivity:
Accounting statement should not be influenced
by personal bias on the part of the accountant who
complies. Although accountant use judgment when
drawing up a set up for account, such enterprise are
applied to ensure a current result.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
65 International Accounting Standards Board
(IASB)
(IASB) started as International Accounting
Committee (IASC) in 1973, in 2001 was changed
to(IASB).
The Board is responsible for all standard-
setting activities, including the development and
adoption of IAS and IFRS.

IASB FRAMEWORK
Framework is often referred to as the
“conceptual framework.”

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
66 International Accounting Standards Board
(IASB)
IASB FRAMEWORK
is the Framework for the Preparation and
Presentation of Financial Statements.
The “Framework”) sets out the concepts that
underlie the preparation and presentation of
financial statements, that is, the objectives,
assumptions, characteristics, definitions, and
criteria that govern financial reporting.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
67 International Accounting Standards Board
(IASB)
IASB FRAMEWORK
The objective of preparing financial statements
1. To determine the performance of the business
2. To know financial position
3. To know the change in financial position
Underlying assumptions under IASB Framework
1. Accrual basis
2. Going concern
Qualitative characteristics of financial statements
Understandability, Relevance, reliability
and comparability.
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
68 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Understandability
It means that quality of financial
information which exists when users of that
information are able to comprehend its meaning.
information within FS should be understood
with minimal difficulties by those having
knowledge of accounting, finance and economic
willingness to study the information with
reasonable diligence.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
69 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Reliability" It means FS information should
be dependable; representing faithfully, and
without bias or undue error, the transactions or
events that either it purports to represent or
could reasonably be expected to represent.
For financial statement to be faithful must
have the following:- Faithful representation
Substance over form Neutrality Prudence
Completeness

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
70 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Assignment one:
Five printed pages font 12 Arial, single
spaced line, explain the components of
reliability as an important ISAB
framework Qualitative characteristic
of financial statements

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
71 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Relevance:
The information contains in FS should able
influences decisions made by users about the
allocation of scarce resources by:
(a) helping them form predictions about the
outcomes of past, present or future events; and/or
(b) confirming or correcting their past evaluations;
(c) enables users to assess the rendering of
accountability by preparers

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
72 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Relevance:
The information contains in FS should able
influences decisions made by users about the
allocation of scarce resources by:
(a) helping them form predictions about the
outcomes of past, present or future events; and/or
(b) confirming or correcting their past evaluations;
(c) enables users to assess the rendering of
accountability by preparers

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
73 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
Materiality or "materiality test" :
The FS should contain only those information
that can influences decisions
Only relevant and reliable information may be
omitted should be disclosed
Materiality depends on the size of the item
and its impacts in case of error, mis-judgement,
omission or misstatement.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
74 International Accounting Standards Board
(IASB)
Qualitative characteristics of financial statements
“Comparability:
Information contained in FS should be able to
discern and evaluate similarities in, and
differences between, the nature and effects of
transactions and events, at one time and over
time, either when assessing aspects of a single
reporting entity or of a number of reporting
entities.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
75 International Accounting Standards Board
(IASB)
The users of accounting information
1: Investors:
The providers of risk capital and their advisers
are concerned with the risk inherent in and
return provided by, their investments.
They need information to help them determine
whether they should buy, hold or sell their
investment asset (SHARE). Shareholders are also
interested in information which enables them to
assess the ability of the enterprise to pay
dividends.
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
76 International Accounting Standards Board
(IASB)
The users of accounting information
2: Employees:
Employees and their representative groups are
interested in information about the stability and
profitability of their employers.
They are also interested in information which
enables them to assess the ability of the
enterprise to provide remuneration, retirement
benefits and employment opportunities.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
77 International Accounting Standards Board
(IASB)
The users of accounting information
3: Lenders:
Lenders are interested in information that enables
them to determine whether their loans, and the
interest attaching to them, will be paid when due.
4: Suppliers and other trade creditors:
Suppliers and other creditors are interested in
information that enables them to determine
whether amounts owing to them will be paid when
due.

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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
78 International Accounting Standards Board
(IASB)
The users of accounting information
5: Customers.
Customers have an interest in information about
the continuance of an enterprise, especially when
they have a long-term involvement with, or are
dependent on, the enterprise.
6: Governments and their agencies
Governments and their agencies are interested in the
acc. information in order to regulate the activities of
enterprises, determine taxation policies and as the
basis for national income and similar statistics
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BY Stewart MBEGU
 ACC 100 : INTRODUCTORY ACCOUNTING
79 International Accounting Standards Board
(IASB)
The users of accounting information
7: Public.
Enterprises affect members of the public in a
variety of ways. For example, enterprises may make
a substantial contribution to the local economy in
many ways including the number of people they
employ and their patronage of local suppliers.
Financial statements may assist the public by
providing information about the trends and recent
developments in the prosperity of the enterprise
and the range of its activities.
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BY Stewart MBEGU
80

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BY Stewart MBEGU