Professional Documents
Culture Documents
Accounting
Not a rocket technology
As simple as adding and subtracting
What is Accounting?
Language of business serve as a
Information System
Inputs
Processes
Outputs
Users
Users of accounting
information
Owners and shareholders
Managers
Employees
Prospective Investors
Lenders
Security Analysts and advisers
Suppliers
Customers
Government and regulatory agencies
Financial Statements
Balance sheet Which shows the
Financial Statements
Profit and Loss Account
[Income
Statement] This reports the results of
the operation of an enterprise during
the accounting period. Measures the
economic performance of a company.
Financial Statements
Statement of cash flows Outlines
Forms of Business
Organization
Sole proprietorship
Partnership
Company
Private Company
Public Company- not listed
Public company Listed
Accounting Concepts
Reporting Entity Concept
Business
is distinct and separate from its
owners and other firms. Defines the
scope of the activities to be included
in the financial statements.
a fairly
Periodicity
Life of the business is divided into
Money Measurement
Accounting records only monetary
Cost concept
All transactions are recorded at their
Dual Aspect
Economic resources = Claims.
Assets
Assets are resources owned by the
enterprise
from
which
future
economic benefits are expected to
flow to the enterprise.
What the enterprise owns
Economic benefit- higher cash inflow
or lower cash outflow
Claims
Who has the rights to the assets?
Who has the claim on the assets?
Claims
Owners Equity
Liability
Liabilities
Liabilities are present obligations of
Owners Equity
Equity represents the owners claim
on the assets.
Owners Equity is the residual
interest
in the assets of the
enterprise after deducting all its
liabilities.
Accounting Equation
Economic resources = Claims.
Assets = Liabilities + Owners Equity.
Business Activities
Service Organization
Merchandising Organization
Manufacturing Organization
Sanath Equity
100000
Assets
Cash
100000
100000
100000
Equity
Owners Equity 100000
Loan creditors
50000
Assets
Cash
150000
150000
150000
Assets
Owners Equity
Loan creditors
Cash
Office Equipment
100000
50000
150000
10000
140000
150000
Assets
Owners Equity
Loan creditors
Accounts payable
Cash
Office Equipment
Office furniture
100000
50000
20000
170000
10000
140000
20000
170000
Assets
Owners Equity
Loan creditors
Accounts payable
Cash
Office Equipment
Office furniture
96000
50000
20000
166000
6000
140000
20000
166000
Equity
Owner's equity
116000
Loan creditors
50000
Accounts payable
20000
Assets
Cash
26000
Office Equipment
140000
Office furniture
20000
186000
186000
Equity
Owner's equity
126000
Loan creditors
50000
Accounts payable
20000
Assets
Cash
36000
Office Equipment
140000
Office furniture
20000
196000
196000
Equity
Owner's equity
126000
Loan creditors
50000
Accounts payable
10000
Assets
Cash
26000
Office Equipment
140000
Office furniture
20000
186000
186000
Equity
Owner's equity
141000
Loan creditors
50000
Accounts payable
10000
201000
Assets
Cash
26000
Office Equipment
140000
Office furniture
20000
Accounts Receivables
15000
201000
Equity
Owner's equity
128000
Loan creditors
50000
Accounts payable
10000
188000
Assets
Cash
13000
Office Equipment
140000
Office furniture
20000
Accounts Receivables
15000
188000
Equity
Owner's equity
126000
Loan creditors
50000
Accounts payable
10000
186000
Assets
Cash
11000
Office Equipment
140000
Office furniture
20000
Accounts Receivables
15000
186000
Income Statement
Revenues
Service Revenue
Expenses
Advertisement
Salary
Rent
Total expenses
Net Profit
28000
45000
4000
5000
8000
17000
Income Statement
Revenues
Service Revenue
Expenses
Advertisement
Salary
Rent
8000
Depreciation
Total expenses
Net Profit
26000
45000
4000
5000
2000
19000
Equity
Owner's equity
124000
Loan creditors
50000
Accounts payable
10000
184000
Assets
Cash
11000
Office Equipment
138000
Office furniture
20000
Accounts Receivables
15000
184000
Income Statement
Revenues
Service Revenue
Expenses
Advertisement
Salary
Rent
8000
Electricity exp
Depreciation
Total expenses
Net Profit
25500
45000
4000
5000
500
2000
19500
Equity
Owner's equity
123500
Loan creditors
50000
Accounts payable
10000
Electricity payable
500
184000
Assets
Cash
11000
Office Equipment
138000
Office furniture
20000
Accounts Receivables
15000
184000
Owners Equity
Capital contributions/investments by the
owner(s)
Withdrawals/ Dividend
Revenues
Expenses
Revenues
Revenues
customers
rendered.
Revenues result in assets coming into
business for performing work/services.
Revenues increase Owners equity
Expenses
Expenses are costs of earning revenues.
Sacrificies made to earn revenues.
Expenses decrease Owners equity
Retained Earnings
Dividends decrease Owners equity
Retained Earnings = Net Profit Dividend
Retained Earnings= Revenues-Expenses-Dividend
Owners Equity
Retained Profits increases Owners
equity
Revenues increase Owners equity,
expenses decrease Owners equity,
dividends decrease Owners equity.
Withdrawal by the owner equity
decreases owners equity and fresh
capital brought in increases the same.
Other Concepts
Accrual Concept- Revenues are recognized when
Conventions
Consistency Accounting practices to remain