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Abu Dhabi

Basic Accounting Class

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Published in: Accounting
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Basic Accounting for beginners. Definition, Objective of accounting, Accounting cycle, classification of accounts.

Nishat P / Dubai

0 year of teaching experience

Qualification: Master degree. Subject Economics

Teaches: Maths, Islamic

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  2. What is Accounting? • Accounting is a language of business. • "Accounting is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information." — as per American Accounting Association. • An accountant is an information specialist. Accounting Basic Terms Liabilities Debit Credit Accounting Classifying AMI wing
  3. Accounting Equation: The three elements of the accounting equation are assets, liabilities, and shareholders' equity. The Formula as below: Total Assets (What you own) = Total Liabilities (What you owe) + Total Shareholder's Equity (Your Contributions or retained earnings in the business) Total Assets Current Assets Non-Cu rrent Assets Total Liabilities Current Liabilities Non-current Liabilities Total Shareholders' Equity Share Capital
  4. Various terminology used in the Accounting: Assets: An assets is something that can use in the future operations of the company & belonging to the company. E.g., land, building, machinery, cash etc. Equity: Equity represents the shareholders' contribution in the company. Equity is the net amount of funds invested in a business by its owners, plus any retained earnings. It is further divided into two categories. i. Owner Claim — Capital (Shareholder's Equity) ii. Outsider's Claim— Liability Capital: The excess of assets over liabilities of the company. It is the difference between the total assets & the total liabilities of the company. e.g. if on a particular date the assets of the business amount to Dhs. 30,000 & liabilities to Dhs. 10,000 then the capital on that date would be Dhs. 20,000/-. Liability: Amount owed by the company to the outsiders. e.g.,: trade creditor, bank overdraft, loan etc. Revenue: It is a monetary value of the products or services sold to the customers during the period. It results from sales, services & sources like interest, dividend & commission. Expense/Cost: Expenditure incurred by the company to earn revenue is termed as expense or cost. The difference between expense & asset is that the benefit of the former is consumed by the business in the present whereas in the latter case benefit will be available for future activities of the business. e.g., Raw material, consumables & salaries etc. Drawings: Money or value of goods belonging to business used by the proprietor for his personal use. Owner: The person who invests his money or money's worth & bears the risk of the business. Sundry Debtors: A person from whom amounts are due for goods sold or services rendered or in respect of a contractual obligation. It is also known as debtor, trade debtor, accounts receivable. Sundry Creditors: It is an amount owed by the enterprise on account of goods purchased or services rendered or in respect of contractual obligations. e.g., trade creditor, accounts payable.
  5. Objective of Accounting: • To maintain the books of accounts: by recording all the business related daily transactions such as financial and non financial, we can maintain the books of accounts. • To prepare the annual accounts: by using books of account we can prepare the annual accounts/Final Account/Financial Statement. It is include Income statement, Balance Sheet, Cash Flow and Retained Earnings Statement. OBJECTIVES OF AUDITING PRIMARY OBJECTIVE 1. To Examine the Accuracy of Books of Accounts 2. TO Express Opinion on Financial Statements SECONDARY OBJECTIVE l. Detection and Prevention of Errors Detection and Prevention of Frauds 2.
  6. ACCOUNTING CYCLE: • The following is the complete cycle of Accounting a) The opening balances of accounts from the balance sheet & day to day business transaction of the accounting year are first recorded in a book known as journal. b) Periodically these transactions are transferred to concerned accounts known as ledger accounts. c) At the end of every accounting year these accounts are balanced & the trial balance is prepared. d) Then the final accounts such as trading & profit & loss accounts are prepared. e) Finally, a balance sheet is made which gives the financial position of the business at the end of the period.
  7. The rules of Journal in Accounting: Debit the account when assets and expenses increase. Debit the account when liabilities and revenues decrease. Credit the account when assets and expenses decrease. Credit the account when liabilities and revenues increase.
  8. Classification of accounts: Personal (persons — customers. crecfitors Dr — Receiver Cr — Giver ccounts Real (relating to assets) Dr — Comes In Cr — Goes out Impersonal Nominal (relating to expenses. losses, incomes) Dr — expenses/bss Cr — incomes/ ains
  9. • Personal Accounts: Accounts recording transactions relating to individuals or firms or companies are known as personal accounts. Real Accounts: The accounts recording transactions relating to tangible things (which can be touched, purchased and sold) such as goods, cash, building, machinery etc., are classified as tangible real accounts. Whereas the accounts recordin transactions relating to intangible things (which do not have physical shape) such as goodwil patents and copy rights, trade marks etc., are classified as Intangible real accounts. Nominal Accounts: The accounts recording transactions relating to the losses, gains, expenses and incomes e.g. Rent, salaries, wages, commission, interest, bad debts etc., are classified as nominal accounts. Rules of debit and credit (classification based): 1. Personal accounts : Debit the receiver Credit the giver (supplier) 2. Real accounts : Debit what comes in Credit what goes out 3. Nominal accounts : Debit expenses and losses Credit incomes and gains
  10. The Accounting Process: Anal'" Of Transaaims Step 8 Accounting Cycle pr9ar"nandal Trel Balance Step 2 step 3 Prep&e Trial

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