MGT101 Handouts by MS

Chapter - 1 · Basics of Financial Accounting · Sr. · No Course outline – Topics · Definition of Accounting and financial information · Money Measurement Concept and Financial Position · Functions of Financial Accounting · Elements of Financial Statements · Entity and Separate Entity Concept · User of Financial Information · Underlying Assumption – Going Concern · Recognition of the elements of financial statements · 10 Measurement of the elements of financial statements

11 Qualitative characteristics of useful financial information

There are three sources of financial information, which are also known as accounting phenomena.

i) Transactions

Transactions are the outcome of dealings made.

ii) Events

Events are the outcome of incidents happened.

iii) Conditions

Conditions are the adjustments in recorded information.

Transaction (source of financial information)

Transaction occurs when two persons deal with each other.

Social motives dealings Social transaction For example; a person receiving birthday gift from his friend is a social transaction.

Economic benefits dealing Accounting transaction Accounting transaction is a monetary dealing between the entity (business / non business) and other person. An accounting transaction causes change in financial position (financial status) of the entity.

Dealing between entity and other person includes:

1. Dealing of entity (first party) with owner/s (Second party)
2. Dealing of entity (first party) with any person other than the owner/s (third parties).

From this details we can extract two criteria to identify accounting transaction:

1. Measurability in terms of money, and
2. Dealing of the entity with other person.