Discussion Topics

Day/Session 1 ▪ What do Accountants do?

▪ Flow of Tasks
▪ Branches of Accounting
▪ Users of Accounting Information
Accounting Fundamentals ▪ Qualitative characteristics of
accounting information
▪ Underlying assumptions, principles,
and policies
▪ Key elements of financial
A.S.Nooruddin Ahmed statements
Associate Professor, ICMAB
▪ Contemporary Reporting
Landscape
Accounting –At a Glance
Accounting –At a Glance
What Is Accounting?
• Accounting consists of three basic activities—it identifies, records, and
communicates the economic events of an organization to interested users.
Let’s take a closer look at these three activities.
• As a starting point to the accounting process, a company identifyes the economic
events relevant to its business.
• Once a company like PepsiCo identifies economic events, it records those events
in order to provide a history of its financial activities. Recording consists of
keeping a systematic, chronological diary of events, measured in dollars and
cents.
• Finally, PepsiCo communicates the collected information to interested users
by means of accounting reports. The most common of these reports are called
financial statements.
Accounting Process:
 What Do Accountants Do?
Identify relevant economic events and accumulate Assets
source documents/evidence[External financial
transactions and internal periodical adjustments]
backed by authentic source documents Liabilities

Record (Process) identified economic events

systematically (and chronologically) in the relevant
Accountants books of accounts [Journal and/or Ledger] either Equity/Fund
manually or through software input

Communicate/report the consequences/results of

operations happened during the accounting period in Revenue/Income
the form of financial reports to the interested
users/stakeholders [Investors/shareholders, lenders,
suppliers, regulators, tax authorities] Expense

Guiding Principles: International Accounting Standards (IAS) and/or International Financial Reporting Standards (IFRS),
and provisions of local laws and regulations.
 Accounting: Flow of Tasks
Source Documents Recording/Processing Reporting/Communicating
(Output)
External Financial Transactions Data entry using A complete set of financial
[Purchase invoice, sales invoice, Software reports include:
bank statements]
Ledger [Group, Master, 1. Statement of financial
Periodical Adjustments Subsidiary] position [Balance sheet]
[Depreciation, provision, 2. Statement of Profit or loss
revaluation] in line with 3. Statement of changes in
accounting policies and equity
authorized by the Management 4. Cash flow statement
5. Notes to the financial
statements

Guiding Principles: Standards and/or Rules issued by the Standards setting bodies
and Regulators
 Recording/Processing Financial Events and Transactions
Accounts and Finance People IT Department will make sure that
will identify transactions and input data will go into relevant
input data into software ledger accounts and financial reports

Identify Respective Relevant Relevant Relevant

transactions subsidiary General Group Financial
supported by (individual) Ledger Ledger Statements
valid documents ledger accounts Accounts Accounts and Notes

These Ledger Accounts must exist in the

chart of accounts prepared and maintained
by the Accounts and Finance Departments
 Chart of Account
• In an accounting system, an account is a record (in the general ledger) that tracks
the financial activities of a specific type of transaction such as asset, liabilities,
equity, revenue, or expense. For example, cash account, equipment account….
• A chart of accounts is a list of all the accounts used by an entity in its general
ledger to record all the transactions and events under double-entry systems.
• A chart of accounts includes asset accounts, liability accounts, equity accounts,
income accounts, expense accounts and relevant contra-accounts.
• Each account is given a specific number (code of accounts) depending on the
nature of the account.
• It is the starting point of an accounting system because it tells which accounts to
include in the general ledger system and what mechanism to use in making and
posting journal entries.
 Typical Chart of Accounts [Simple]
Accounts Title Code/Accounts Nature Normal Balance
Name
Cash 101 Asset Debit
Trade/Accounts receivables 110 Asset Debit
Notes Receivable 115 Asset Debit
Prepaid rent 120 Asset Debit
Equipment 160 Asset Debit
Accumulated depreciation 190 Contra account Credit
Trade/Accounts payable 201 Liability Credit
Notes Payable 215 Liability Credit
Deferred revenue 220 Liability Credit
Owners' Capital 301 Equity Credit
Owner’s Drawing 320 Equity Debit
Sales revenue 401 Income Credit
Investment Revenue (Interest or dividend 420 Income Credit
received/receivable)
Sales return and allowance 460 Contra income Debit
Sales discount 470 Contra income Debit
Purchase 501 Expense Debit
Purchase return 520 Contra expense Credit
Purchase discount 540 Contra expense Credit
Rent expense 580 Expense Debit
Salary expense 590 Expense Debit
 Chart of Accounts [Advanced]
Code Head of Ledger Accounts

Group Ledger General Ledger Subsidiary Ledger

100000 Assets

110000 Non-current Assets

[Also known as Fixed Assets]
110100 Property, Plant and Equipment

110110 Land and Land Development

110111 Land Purchase

110112 Land Development

110120 Building and Premises

110130 Equipment [generator, air conditioner

and fire extinguisher]
110140 Computer
110200 Investment Investment in share/bond Investment in X LTD share
110300 Intangible Assets Goodwill, copyright, patent, Patent A, Patent B, Patent C
franchise, Software
 Chart of Accounts [Sample]
Code Head of Accounts
110400 Donated Assets
110500 Other Fixed Assets
120000 Current Assets
120100 Inventories
120101 Raw Materials

110102 Work-in-process

110103 Finished Goods

110200 Receivables
110300 Prepayments
110400 Cash in hand and Bank
110401 Cash

110402 Petty cash

 Chart of Accounts [Sample]
Code Head of Ledger Accounts

Group Ledger General Ledger Subsidiary Ledger

400000 Revenue/Income

410000 Sales Revenue

410100
410110
410111
410112
410120 Product line 1
410130 Product line 2
410140
410200 Other Revenue Rental income Rent from Property A, B, C
Investment revenue
 Branches of Accounting
Financial Accounting Cost and Managerial Accounting Other Branches *

Report to outsiders Report to management Based on terms of agreement

Follows International Accounting No specific standards to follow Mixed

Standards/International Financial [Bangladesh Cost Accounting
Reporting Standards Standards]
Reports consequences of past Focuses on future affecting the Varies in accordance with terms of
activities performance agreement

Emphasize on precision Timeliness

Emphasize on objectivity Relevance

Summarized company wide Detailed segment wise

*Forensic accounting, environmental accounting, tax accounting, auditing, Government accounting, Not-for-profit
accounting, Fiduciary accounting, sustainability accounting.
 Users of Financial/Accounting Information

Internal Board and Managers [To

plan and control]

Shareholders
Suppliers
Users Creditors
Lenders
External Tax
Authorities

Regulators

Customers
 Internal users

• Boards and Managers are responsible for running the daily operations as
well as the attainment of the organizational goals.

• Managers use accounting information to plan (e.g., preparing a cash

budget, production budget, master budget) and control the business by
making various important decisions (e.g. which products to produce,
what prices should be charged, and so on).
 External Users

• Investors (existing owners or shareholders and prospective investors)

use accounting information to decide whether to buy, hold, or sell their
investment in the shares (ownership) of a company. These decisions are
usually taken based on the profitability (EPS, ROI, P/E ratio) and
solvency of a company.
• Creditors (such as suppliers and bankers) use accounting information to
evaluate the risks of granting credit (sell goods or render services on
credit to a new customer or extend credit to an existing customers) or
lending money.
 External users…continued……
• Taxing authorities (National Board of Revenue in Bangladesh) verify
whether the company complies with tax laws and pays the exact amount
of tax (based on financial statements data).
• Regulators use accounting data to check whether the company is
operating within prescribed rules (Companies Act and other relevant
laws).
• Customers are interested to know whether the company will be able to
honor its warranty obligations and continue the product lines in the
foreseeable futures.
 Qualitative characteristics of information (IASB)
Relevance
Decision
Usefulness
Fundamental Faithful
representation

Qualitative Understandability
characteristics

Comparability
Enhancing

Verifiability

Timeliness
 Explanations of the qualitative characteristics
• Relevance: Information is relevant if it can influence/change the economic decisions of
users. Financial information is capable of making a difference in decisions if it has
predictive value, confirmatory value, or both. Another important aspect that signifies
relevance is ‘materiality’. Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions.
• Faithful representation: Free from error and bias (Neutral), complete….presents the
consequences of what actually has happened…
• Understandability: Classifying, characterizing and presenting information clearly and
concisely makes it understandable.
• Comparability: Information about a reporting entity is more useful if it can be
compared with similar information about other entities and with similar information
about the same entity for another period or another date. Consistency in applying and
defining elements of financial statements is a precondition for comparability.
• Verifiability: Verifiability means that different knowledgeable and independent
observers could reach consensus, although not necessarily complete agreement, that a
particular depiction is a faithful representation.
• Timeliness: Timeliness means having information available to decision-makers in time
to be capable of influencing their decisions.
 Underlying assumptions of financial statements
Going concern
The Conceptual Framework notes that financial statements are normally prepared
assuming the entity is a going concern and will continue in operation for the
foreseeable future.
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow
information, using the accrual basis of accounting. Under the accrual basis, an
event or transaction that can change the financial position of an entity is to be
recognized, recorded, and reported regardless of whether cash is received or paid.
 Generally Accepted Accounting Principles
(GAAPs)
Assumptions:
1. Economic entity/Separate Entity: The activities of entity must be kept separate from the activities of
owners and other entities. Examples owners/shareholders’ equity, drawing/dividends.
2. Going concern: The entity will continue in operation in the foreseeable future. Neither need nor intention
to shut down or curtail its operation materially. Assets…Depreciation expense…
3. Monetary unit: record events that can be expressed in terms of money.
4. Periodicity : Information is presented by dividing the economic life of an entity into smaller part of time
such as quarterly, or at least annually for meaningful financial reporting purpose.
Principles:
1. Cost principle: Assets are recorded at their acquisition costs or transaction price at the time of acquisition.
Verifiable and objective measurement is facilitated.
2. Revenue recognition: Revenues are recognized and recorded and reported in the accounting period in
which they are earned (performance obligation is satisfied) and realized/realizable (received or expected to
receive)
3. Expense recognition: ……….incurred (goods are received or services are enjoyed) and become measurable
or Matching of expense with related revenues (Matching principle).
4. Full disclosure: Information that is of sufficient importance to influence the judgment and decisions of an
informed user must be disclosed.
 Significant accounting policies
Current versus non-current classification
Offsetting: The Company reports separately both assets and liabilities, and income and expenses, unless
required by an applicable accounting standard or offsetting reflects the substance of the transaction, and such
offsetting is permitted by applicable accounting standards.
Cash dividend to the equity holders: The Company recognizes a liability to pay cash dividends when the
distribution is authorized and the distribution is no longer at the discretion of the Company. As per the
corporate laws in Bangladesh, a distribution is authorized when it is approved by the shareholders. A
corresponding amount is recognized directly in equity.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less
from the date of acquisition that are subject to an insignificant risk of changes in their fair value, and are used
by the Company in the management of its short-term commitments
Property, plant and equipment
Recognition and measurement
Subsequent costs
Depreciation
No depreciation is charged on land and capital work in progress (CWIP) as the land has unlimited useful life
and CWIP has not yet been placed in service.
Amortization
Amortization is recognized in profit or loss on a straight line basis over the estimated useful lives of intangible
assets.
 The elements of financial statements
Asset. A present economic resource controlled by the entity as a result of
past events from which future economic benefits are expected to flow to
the entity.
Liability. A present obligation of the entity to transfer an economic
resource as a result of past events.
Equity. The residual claim/interest in the assets of the entity after settling
or deducting all its liabilities.
Income. Increases in assets or decreases in liabilities that result in increases
in equity, other than those relating to contributions from holders of equity
claims.
Expenses. Decreases in assets or increases in liabilities that result in
decreases in equity, other than those relating to distributions to holders of
equity claims.
 Contemporary Reporting Landscape

• Sustainability Report
• ESG Report
• Integrated Report

https://dbl-group.com/sustainability/

https://global.toyota/pages/global_toyota/sustainability/report/sdb/sdb22_en.pdf

https://web.idlc.com/uploads/financial_report/idlc-annual-report-2023-941983.pdf
 Sustainability Report
Category Aspects Impact
1. Environmental GHG Emission √
Stenter machines & eco-boosters √
Exhaust gas boilers (EGBS) √
Carbon disclosure project (CDP) √
Renewable energy √
Water usage √
Rainwater harvesting plant √
E-flow technology in washing √
Effluents √
Sludge management √
2. Social Day care center √
Maternity facilities and benefits √
Children education support initiative √
Wages & its impacts √
Mini fire station √
Medical center √
Women health initiative √
3. Economic Regulatory compliance √
Stakeholder engagement √
Grievance mechanisms √
Community development √
Anti-corruption √
 ESG Report
Category Aspects Impact
1. Environmental GHG Emission √
Stenter machines & eco-boosters √
Exhaust gas boilers (EGBS) √
Carbon disclosure project (CDP) √
Renewable energy √
Water usage √
Rainwater harvesting plant √
E-flow technology in washing √
Effluents √
Sludge management √
2. Social Day care center √
Maternity facilities and benefits √
Children education support initiative √
Wages & its impacts √
Mini fire station √
Medical center √
Women health initiative √
3. Governance Regulatory compliance √
Stakeholder engagement √
Grievance mechanisms √
Community development √
Anti-corruption √
 Integrated Report
• An integrated report is a concise communication about an organization’s strategy,
governance, performance, and prospects in the context of its external environment
led to the creation of value in the short, medium, and long term.
• See IIRC 2021 Framework for details.
The Basic Accounting Equation
• Assets =Liabilities + Owner’s Equity

• Assets: are resources a business owns. The business uses its assets in
carrying out such activities as production and sales. The common
characteristic possessed by all assets is the capacity to provide future
services or benefits.
• Liabilities :are claims against assets—that is, existing debts and
obligations.
• Owner’s Equity :The ownership claim on total assets is owner’s
equity.
The Basic Accounting Equation
• REVENUES: Revenues are the gross increase in owner’s equity
resulting from business activities entered into for the purpose of
earning income.
• DRAWINGS An owner may withdraw cash or other assets for personal
use. We use a separate classification called drawings to determine
the total withdrawals for each accounting period.
• EXPENSES : Expenses are the cost of assets consumed or services
used in the process of earning revenue. They are decreases in
owner’s equity that result from operating the business.
The Basic Accounting Equation
Transaction Analysis:
• TRANSACTION (1). INVESTMENT BY OWNER Ray Neal decides to
open a computer programming service which he names Softbyte. On
September 1, 2014, he invests $15,000 cash in the business. This
transaction results in an equal increase in assets and owner’s equity.
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Transaction Analysis:
Thanks for listening!