Chapter One: Introduction Objectives At the end of the lesson, students should be able to : • explain the concepts of Accounting Entity, Accounting Period, Monetary Convention, Going Concern and Historical Cost. • know the Accounting Cycle. Basic Book-keeping concepts The Accounting Entity or Business Entity Accounting Period Monetary Convention The Going Concern The Historical Cost The Accounting Entity Or Business Entity concept The business exists as a unit by itself. It is separated from its owner. Only transactions and events related to the business are recorded in the business books. Accounting Period The life of a business is divided into many equal and fixed periods of time. Eg one year Similar to your parents’ monthly salary income & expenses… ? 1 February 1998 28 February 1998 One month ? 1 March 1998 March 31 May 1998 April three months May ? 1 January 1998 Jan. Feb. 30 June 1998 Mar. Apr. six months May Jun. ? 1 September 1998 9 10 11 12 1 2 31 August 1999 3 4 One year 5 6 7 8 Monetary Convention Click me! Can you tell me… • How much is your health worth? • If I want to buy your attitude, how much should I pay you? • Can I buy laziness from you? How much are you willing to sell? Do you think everything in the world can be measured in terms of dollars and cents? Therefore, ONLY MONEY is used as the basic measuring unit for financial reporting Going Concern Imagine you just set up a new company. Do you think you want to sell off your business next year? Why not? Assumption: The business entity will continue to operate and it will not close down. All assets owned by the business are assumed to be used into the unknown future. Hence, we value the assets at historical costs. Historical Cost AFTER 11/9 BEFORE 11/9 Market price changes all the time! Therefore… All transactions/assets of a business entity are recorded at the original cost price. Can you still remember the 5 concepts ? One day, you bought a new handphone Nokia 8310… You also received an invoice from M1… You decided to write down what you have spent on a notebook so that you will not forget… To record every different expenses on your notebook seem very messy to you, so you decided to keep a notebook for hobbies, books & stationery, food & transport etc… You want to see if your records are correct at the end of the month… Did you forget to record anything?… Income $ Pocket money received Expense $ 140 Hobbies 20 Food & Transport 70 Books & Stationery 10 Sports & Recreation 15 Handphone bill 20 Left* 5 140 140 At the end of the month, you added up all your pocket money received and the total amount of money spent. Did you overspent on your hobbies? Do you have some money to save for the month? How much money do you have left at the end? Should you cut down on your expenses next month? … Source Documents Can you link?? (originals) Books of Prime Entry (Journal Entries) Ledgers Trial Balance Adjustments Reports SUMMARY What have you learn today? Any questions? Do you find POA more interesting now? Class worksheet to test your understanding.