After studying this chapter , you will be able to :

1. Chapter 4: The structure of accounting theory After studying this chapter , you will be able to : 1- List the elements of structure of accounting theory. 2- Define “accounting postulates” and explain them. 3- Set the limitations of the monetary unit postulate.

2. After studying this chapter , you will be able to : 4- Discuss the theories explaining equity. 5- Describe the basic accounting principles. 6- List the exception / modifying principles (user constrains)

3. Elements of The Structure • The elements as essential foundation of accounting – that govern the development of accounting techniques. • The elements are: 1-A statement of the objectives of financial statements. 2-A statement of the postulates and theoretical concepts of accounting concerned with the environmental assumptions and the nature of the accounting unit.

4. Elements of The Structure 3-A statement of the basic accounting principles. These are based on both the postulates and theoretical concepts. 4-A body of accounting techniques. These are derived from the accounting principles.

6. The accounting postulates • “The accounting postulates are basic assumptions or fundamental propositions concerning the economic , political and sociological environment in which accounting must operate” . • Provide a foundation for the accounting process.

7. The accounting postulates- The Entity Postulate - • Holds that each accounting unit separate and distinct from its owner and other firms • Distinguish between business and personal transactions • One way to define economic unit responsible for economic activities and control of the unit • Determine economic interest for various users of accounting information

8. The accounting postulates- Going Concern Postulate - • This postulate holds that the business entity will continue its operations long enough to recognize its projects, commitments and ongoing activities • The postulate assumes that the entity is not expected to be liquidated in the foreseeable future or that the entity will continue for an indefinite period of time

9. The accounting postulates- Going Concern Postulate - • Provide financial statement as a series of continuous report Implications: depreciation and amortization are used, plant assets recorded at cost instead of liquidation value, items are labeled as fixed or long-term.

10. The accounting postulates- Going Concern Postulate - • Justifies the valuation of assets on a non liquidation basis and provide the basis for depreciation or impairment of asset. • Fixed assets are depreciated over their useful life rather than shorter period of liquidation. • Support benefit theory that encourage the manager to forward looking and motivate investors to commit capital to an enterprise.

11. The accounting postulates- Unit of Measure Postulate - • Accounting is a measurement and communication process of the activities of the firm that are measurable in monetary terms. • Two principal limitation of accounting; • Accounting information are quantified the prediction of non monetary information • Monetary unit have the unit of purchasing power that cannot be determined accurately and stable.

12. The accounting postulates- Unit of Measure Postulate - • Example: employee satisfaction and percent of international employees are not transactions that should be included in the financial records.

13. The accounting postulates- The accounting period postulate - Economic life of a business divided into artificial time periods. • Holds that financial reports depicting changes in the wealth of the firm should be disclosed periodically. • Duration period may vary but income tax require income determination on annual basis, or normal business practice period. • More companies issue interim report for more update and reliable information.

14. 2005 2006 2007 QTR 1 QTR 2 QTR 3 QTR 4 JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC The accounting postulates- The accounting period postulate - • Imposes accruals and deferrals, required the preparation of financial position in term of prepaid exp. , uncollected rev., unpaid wages and depreciation exp.