m



Ú 

m provides information primarily to people outside the
company

m provides information that would be helpful in attracting

capital
ñ  uity and debt (useful in debt contracts)
ñ Credit from suppliers
ñ Customers
ñ mployees
V  

m provides information to people inside the company
ñ Internal investment decisions
ñ Performance evaluation

©

m provides information to the tax authorities
„ Àseful to those making investment and credit decisions, who
have a reasonable understanding of business and economic
activities.

„ Helpful to
m present and potential investors
m creditors
m other users
m in assessing the amount, timing, and uncertainty of future
cash flows.

„ Provides information about economic resources, the

claims to those resources, and the changes in them.
„ ntity
„ Money Measurement
„ Cost
„ Going Concern
„ Periodicity
„ Accrual
„ Matching
„ Double ntry Accounting
©ransaction/vent

Preparation of Vouchers

Recording in the Primary Books

Preparation of ©rial Balance

Preparation of Financial Statements

„ Balance Sheets
m Assets
m Liabilities
m  uity

„ Income Statements
m Income
m xpenses
„ Balance sheet is a statement of the financial position of
a business as of a certain date
„ Assets, e.g., cash, accounts receivable, e uipment, land
„ Liabilities --amounts/services owed by the company,
e.g., loans payable, accounts payable, customer
advances, etc.
„ Stockholders¶ e uity --initial investment by the owners
(capital stock --common and preferred stocks) plus the
sum of undistributed profits (retained earnings)
„ Income statement measures the ³performance´ of a
company over a period of time
„ Revenues --a measure of economic benefits generated
by the sale of products or providing of services over a
period of time
„ xpenses --a measure of economic sacrifices incurred to
³earn´ the revenues of a given period
„ xamples of expenses --cost of inventory sold, salaries
to employees, rent and lighting,, advertising, .......
„ Net income = revenues (-) expenses
Assets (A) = Liabilities (L) +  uity ()

All busi ess tra sa ti s ill affe t t e e uati i su a

ay t at eit er t e e uality ill be ai tai e r a e
e uality a ie e

A ala e eet is t i but a ra i al re rese tati

f t is e uati