PAPER IE01: PRINCIPLES OF ACCOUNTING

Course Materials
July-December 2020 Session

Syllabus Overview
This paper deals with very basic concepts of accounting and information systems. The prime focus of
this is to bridge a linkage between professional management accounting education and young learners
who are joining to this profession after finishing their higher secondary school certificate examination.
The course mainly covers basics of financial accounting along with a modest introduction of cost
accounting and management accounting. At the same time, the paper puts an earnest effort to bring the
logic of information systems with accounting mainly focusing on how accounting can work as an
information system in a practical set up. The main purpose of this course unit is to provide an
understanding of accounting concepts and the accounting process encompassing the preparation of
financial statements so that it can provide a significant relief to the students in their further studies at
upper levels.

Expected Outcomes of the Course Unit

On successful completion of this course unit the students will be able to:
(i) Identify and describe the principles and concepts of financial accounting;
(ii) Illustrate the impact of business transactions on the accounting equation;
(iii) Record transactions in books of accounts;
(iv) Prepare basic financial statements ;
(v) Understand cost and management accounting basics; and
(vi) Evaluate accounting as an information system.

Syllabus Structure
The syllabus comprises the following main topics with the relative study weightings:
Segment Topic Weight (%)
A Accounting Environment 15
B Transaction Analysis, Journal, Ledger and Trial Balance 25
C Completion of Accounting Cycles, Worksheet, Financial Statements 30
D Introducing cost and management accounting 15
E An Introduction to Accounting Information Systems 15

Assessment
There will be a written examination paper of three hours. The examination paper will have the following
sections:
Section A – 50 marks
Five compulsory medium answer questions will be given carrying ten marks each. Short scenarios may
be given to which some or all the questions relate.
Section B – 50 marks
One or two compulsory questions will be given. Short scenarios may be given, to which questions relate.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

IE01 – A - Accounting Environment (15%)

Learning outcomes
On completion of their studies students should be able Indicative syllabus content
to:
Lead Component Level
1. Explain the local (a) state accounting environment; 1 • Define accounting, environment and
environment. (b) list the agents of local accounting 1 accounting environment.
environment; • Identify regulators, academics, market,
(c) list professional accounting 1 companies and others who plays role
organizations in Bangladesh; ensuring accounting environment.
(d) explain the applicability of 2 • Introduce ICMAB and ICAB with prospective
accounting standards in role in ensuring professional accounting
Bangladesh. environment.
• Introduce GAAP, BAS, BFRS and BCAS.
2. Explain the global (a) state accounting environment 1 • Accounting environment from a global
environment. from a global perspective; perspective.
(b) list global market players 1 • Different international bodies relating to
dealing with accounting accounting profession like US SEC, AICPA,
environment CIMA, IFAC, FASB, IASB, IASC etc.
(c) list global professional 1 • Global scenario of accounting, accounting
accounting organizations. practice and profession.
3. Explain the (a) explain the background to the 2 • Background, scope and functions of ICMAB.
accounting formation of ICMAB and ICAB; • Background, scope and functions of ICAB.
profession. (b) explain the role of ICMAB in 2
developing the practice of
management accounting.
(c) explain the role of ICAB in 2
developing the practice of
financial accounting and
reporting.

IE01 – B- Transaction Analysis, Journal, Ledger and Trial Balance (25%)

Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
Lead Component Level
1. Define different (a) explain accounts and types of 2 • explanation of accounting and types
types of accounts. accounts; of accounts.
(b) explain transactions and its 2 • differentiate transaction and events.
characteristics; • identify the characteristics of
(c) explain accounting equation; 2 transaction.
(d) explain duality concept of accounting. 2 • explain double entry system of
accounting.
2. Analyze (a) Identify accounting transaction; 2 • Identification of accounting
transaction. (b) Explain the transactions with 2 transactions.
accounting equation; • Construct accounting equation for
(c) Illustrate a very basic form of 2 each transaction.
statement of financial performance • Present statement of financial
and position. performance and position.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

3. Prepare journal, (a) Explain debit and Credit - golden rule 2 • Explain debit and credit.
ledger and trial of accounting; • Present golden rule of accounting.
balance. (b) Identify journals from transaction 2 • Journalize the transactions.
analysis; • Post the journals to ledger and show
(c) Post journals to ledger – T Accounts 2 the balancing.
and Running balance; • Prepare trial balance and prove
(d) Illustrate trial balance and prove 2 mathematical accuracy.
accuracy.

IE01 – C- Completion of Accounting Cycles, Worksheet, Financial Statements (30%)

Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
Lead Component Level
1. Steps in accounting (a) Explain accounting cycle; 2 • Identify different steps of accounting
cycle. (b) Identify various steps in 2 cycle.
accounting cycle; • Aligning different steps in accounting
(c) Describe the relationship among 2 cycle.
the steps. • Cycles for service and manufacturing
companies.
2. Adjusting the (a) Describe revenue recognition 2 • Understanding revenue recognition and
accounts. and matching principles; matching principles.
(b) Explain adjusting entries and its 2 • Importance of adjusting entries.
types; • Types of adjusting entries.
(c) Illustrate adjusted trial balance. 2 • Preparing adjusted trial balance.
3. Prepare worksheet (a) Explain Worksheet; 2 • Preparation of worksheet.
and financial (b) List closing entries; 1 • Prepare closing entries.
statements. (c) Illustrate post closing trial 2 • Prepare post closing trial balance and
balance; show its relationship with statement of
(d) Illustrate statement of financial 2 financial position.
performance, statement of • Prepare financial statements.
owner’s equity and statement
of financial position.
4. Understand (a) Distinguish between service and 2 • Explain merchandising operations.
accounting for merchandising operations; • Identify different types of inventories.
merchandising (b) List typical transactions in 1 • Differentiate between perpetual and
operations merchandising operation; periodic systems of inventory.
(c) Identify different types of 1 • Identify different types of transaction a
inventories; merchandiser usually have like purchase,
(d) Illustrate financial statements 2 sale, returns, discount, cost of goods sold
for a merchandiser; and etc.
(e) Distinguish between single step 2 • Presenting multiple step income
and multiple step income statement.
statements. • Preparing other statements for
merchandiser.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

IE01 – D- Introducing cost and management accounting (15%)

Learning outcomes
On completion of their studies students should be able Indicative syllabus content
to:
Lead Component Level
1. Introduction to (a) Define cost accounting; 1 • Definition of cost accounting and its scope.
cost accounting. (b) Classify costs; 1 • Classify costs in terms of manufacturing
(c) Illustrate different cost 2 process and behavior.
statements as per BCAS 1. • Read BCAS 1 and prepare cost statements.
2. Introduction to (a) Define management accounting; 1 • Definition of management accounting and
management (b) Differentiate management 2 its scope.
accounting. accounting with financial and • Differentiate management accounting with
cost accounting; financial accounting; and management
(c) Explain the role of management 2 accounting with cost accounting.
accounting in decision making; • Decision usefulness of management
(d) Describe management 2 accounting.
accountants and management • Role of management accounting in
accounting profession. management accounting profession.

IE01 – E - An Introduction to Accounting Information Systems (15%)

Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
Lead Component Level
1. Introduction to (a) Define accounting, information and 1 • Define different types of systems and
Information systems; AIS.
Systems. (b) Describe accounting as an 2 • Present accounting as information
Information System; system.
(c) Explain AIS and its environment. 2 • Interaction of accounting with its
environment.
2. General ledger (a) List special journals; 1 • Present different types of journals.
(GL) system. (b) Define chart of accounts; 1 • Design chart of accounts.
(c) Identify types of ledger accounts; 2 • Classify the ledgers with their objectives.
(d) Distinguish between general 2 • How general ledger and subsidiary
ledger and subsidiary ledgers. ledger can provide more classified
information.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

Lecture Sheet – 01
(Class 1 – 2)

IE01 – A - Accounting Environment (15%)

Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
Lead Component Level
1. Explain the (a) state accounting environment; 1 • Define accounting, environment and accounting
local (b) list the agents of local accounting 1 environment.
environment. environment; • Identify regulators, academics, market, companies
(c) list professional accounting 1 and others who plays role ensuring accounting
organizations in Bangladesh; environment.
(d) Explain the applicability of accounting 2 • Introduce ICMAB and ICAB with prospective role in
standards in Bangladesh. ensuring professional accounting environment.
• Introduce GAAP, BAS, BFRS and BCAS.
2. Explain the (a) State accounting environment from a 1 • Accounting environment from a global perspective.
global global perspective; • Different international bodies relating to accounting
environment. (b) List global market players dealing with 1 profession like US SEC, AICPA, CIMA, IFAC, FASB,
accounting environment IASB, IASC etc.
(c) List global professional accounting 1 • Global scenario of accounting, accounting practice
organizations. and profession.

Define accounting:
The information system that identifies records and communicates the economic events of an
organization to interested users.

Environment:
Someone's environment is all the circumstances, people, things, and events around them that
influence their life. Your environment consists of the particular natural surroundings in which you
live or exist, considered in relation to their physical characteristics or weather conditions.

Accounting environment:

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PAPER IE01: PRINCIPLES OF ACCOUNTING

Professional Organizations that influences accounting -

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PAPER IE01: PRINCIPLES OF ACCOUNTING

Bangladesh
BSEC
Company Law
ICAB – BAS / BFRS
ICMAB - CAS
FRC
Tax Law
VAT Law

Tax Year: From 1 July to 30 June as per tax law.

Accounting Standards: The main source of accounting principles is the series of approved
accounting standards issued by the Institute of Chartered Accountants of Bangladesh (ICAB).
Most of these standards are based on international accounting standards IFRS and IAS.

Accounting Regulation Bodies: Securities and Exchange Commission of Bangladesh

Accounting Reports: The financial statements consist of a balance sheet, an income

statement (profit and loss) and cash flows. Accounts should be accompanied by an Auditor's
reports and Director's report.

Publication Requirements: Financial statements must be prepared annually. Companies with

shares listed on the stock exchanges in Dhaka or Chittagong must comply with additional
requirements in terms of financial disclosure and public announcements. The Government may
ask for, via notification in the Official Gazette, an annual information return.

Professional Accountancy Bodies:

Institute of Chartered Accountants of Bangladesh (ICAB)
Institute of Cost and Management Accountants of Bangladesh (ICMAB)

Certification and Auditing: Only members of the Institute of Chartered Accountants of

Bangladesh (ICAB) can apply for an audit license, which allows them to audit companies.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

The IASB’s Framework for the Preparation and Presentation of Financial Statements requires
financial statements to be prepared on the basis that they comply with certain accounting
concepts, underlying assumptions and (qualitative) characteristics. Five of these are:
• Matching/accruals
• Substance over form
• Prudence
• Comparability
• Materiality

The content of the Framework can be summarized as follows:

• Identifying the objective of financial statements
• The reporting entity (to be issued)
• Identifying the parties that use financial statements
• The qualitative characteristics that make financial statements useful
• The remaining text of the old Framework dealing with elements of financial statements:
assets, liabilities equity income and expenses and when they should be recognized and
a discussion of measurement issues (for example, historic cost, current cost) and the
related concept of capital maintenance.

What Is GAAP?
GAAP is a set of rules used for helping publicly-traded companies create their financial
statements. These rules form the groundwork on which more comprehensive, complex, and
legalistic accounting rules are based.
GAAP covers a wide array of topics such as financial statement presentation, liabilities, assets,
equities, revenue and expenses, business combinations, foreign currency, derivatives and
hedging and non-monetary transactions.

Financial accounting information is based on historical data. To facilitate comparisons, the

financial information must follow the generally accepted accounting principles.

While the overall GAAP is specified by the Financial Accounting Standards Board, the
Governmental Accounting Standards Board (GASB) specifies GAAP for state and local
government. Compliance with GAAP as well as SEC is required by publicly traded companies.

What Are the Principles of Accounting?

The best way to understand the GAAP requirements is to look at the ten principles of
accounting.

1. ECONOMIC ENTITY ASSUMPTION

The business is considered a separate entity, so the activities of a business must be kept
separate from the financial activities of its business owners.

2. MONETARY UNIT ASSUMPTION

The monetary unit assumption means that only transactions in U.S. dollar amounts can be
included in accounting records. It’s important to note that accountants ignore the effects of
inflation on the recorded dollar amounts.

3. TIME PERIOD ASSUMPTION

The business activities may be reported in short, distinct time intervals which may be weeks,
months, quarters, a calendar year or fiscal year. The time interval has to be identified in the

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PAPER IE01: PRINCIPLES OF ACCOUNTING

headings of the financial statements such as the income statement, statement of cash flow and
stockholders’ equity statement.

4. GOING CONCERN ASSUMPTION

This accounting principle refers to the intent of a business to carry on its operations and
commitments into the foreseeable future and not to liquidate the business.

5. FULL DISCLOSURE PRINCIPLE

All information that is relative to the business and is important to a lender or investor must be
disclosed in the content of the financial statements or in the notes to the statements. This is the
reason that numerous footnotes are attached to financial statements.

6. COST PRINCIPLE
The cost principle mentions the historical cost of an item. This refers to cash or cash equivalent
that was paid to purchase an item in the past. This asset amount is adjusted for inflation. The
historical cost is reported on the financial statements.

7. MATCHING PRINCIPLE
The matching principle requires that businesses use the accrual basis of accounting and match
business income to business expenses in a given time period.
For example, the commissions for sales should be recorded in the same accounting period that
sales income was made (and not when they were paid).

8. REVENUE RECOGNITION PRINCIPLE

Under the accrual basis of accounting, the revenues must be reported on the income statement
in the period in which it is earned. This means that as soon as a product is sold, or the service
has been performed, the revenues are recognized. This is regardless of whether the money is
received or not.

9. MATERIALITY PRINCIPLE
The materiality principle refers to the misstatement in accounting records when the amount is
insignificant or immaterial. Because of the materiality principle, financial statements usually
show amounts rounded to the nearest dollar.

10. CONSERVATISM PRINCIPLE

If accountants are unsure about how to report an item, conservatism principle calls for potential
expenses and liabilities to be recognized immediately. It directs the accountant to anticipate the
losses and choose the alternative that will result in less net income and/or less asset amount.

Bangladesh

In Bangladesh, the profession of accountancy developed during the British colonial period. The
basic requirements for financial reporting by all companies in Bangladesh are provided by the
Companies Act of 1994. Today, it is represented by two professional bodies, the Institute of
Cost & Management Accountants of Bangladesh (ICMAB) and the Institute of Chartered
Accountants of Bangladesh (ICAB). Chartered Accountants complete their training in practicing
firms and specialize in financial accounting, financial audit and tax. CMAs receive particular
training in cost audit, management audit and management accounting, as well as general
accounting and taxation. Both the ICMAB and ICAB are under the administrative control of the
Ministry of Commerce.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

Bangladesh Financial Reporting Standards (BFRS)

ICAB prescribes Financial Reporting Standards which are known as Bangladesh Financial Reporting
Standards (BFRS). Bangladesh Accounting Standards (BAS) are also included in BFRS.
International Accounting Standards and International Financial Reporting Standards which are
issued by the International Accounting Standards Board are what the BFRS models on. For listed
companies under the Securities and Exchange Commission (SEC) rules, adopted BFRS are legally
enforceable.

ICMAB Releases Thirty One Bangladesh Cost Accounting Standards (BCAS):

To regulate the Cost and Management Accounting practice in Bangladesh and provide guideline for
the professionals ICMAB released the below Bangladesh Cost Accounting Standards:

SL# Bangladesh Cost Accounting Standards

1. BCAS 1: Cost Concepts and Classifications
2. BCAS 2: Cost Estimation
3. BCAS 3: Cost Allocation Base
4. BCAS 4: Indirect Costs
5. BCAS 5: Indirect Cost Rate
6. BCAS 6: Support Department Costs
7. BCAS 7: Job Order Costing
8. BCAS 8: Process Costing
9. BCAS 9: Joint Cost
10. BCAS 10: Target Costing
11. BCAS 11: Life Cycle Costing
12. BCAS 12: Kaizen Costing
13. BCAS 13: Standard Costing
14. BCAS 14: Activity Based Costing
15. BCAS 15: Product Mix Decisions
16. BCAS 16: Transfer Pricing
17. BCAS 17: Performance Measurement
18. BCAS 18: Cash Flows
19. BCAS 19: Budget and Pro forma Financial Statements
20. BCAS 20: Activity Based Management
21. BCAS 21: Capital Budgeting
22. BCAS 22: Enterprise Resource Planning
23. BCAS 23: Strategic Cost Management
24. BCAS 24 – Material Cost
25. BCAS 25 – Employee Costs
26. BCAS 26 – Cost of Utilities
27. BCAS 27 – Captive Consumption
28. BCAS 28 – Capacity Determination
29. BCAS 29 – Quality Costing
30. BCAS 30 – Service Costing
31 BCAS 31 – Construction Contract Costing

Corporate Governance Code

The Bangladesh Securities and Exchange Commission (BSEC) issued a Corporate Governance Code for all
the companies listed with any stock exchange in Bangladesh in order to enhance corporate governance
in the interest of investors and the capital market. Specifically, the section “The Directors’ Report to
Shareholders” includes certain reporting requirements.

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PAPER IE01: PRINCIPLES OF ACCOUNTING

Users of Accounting Information:

What are the objectives of accounting?

• Identification and recording of transactions
• Ascertainment of business performance
• Ascertainment of financial position
• Keeping accounts of cash
• Control over assets and liabilities
• Controlling cost
• Providing economic data
• Helping on taxation
• Determination and evaluation of business policy
• Testing the arithmetical accuracy of accounts
• Creation of values and accountability
• Following legal bindings and prohibition

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