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Dubai

Basics Of Accountancy

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Published in: Accountancy
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Basics of accountancy

Vishnu / Ras Al Khaimah

12 years of teaching experience

Qualification: MBA, finance, PGcert, FHEA- UK

Teaches: Business Studies, Economics, Accountancy: Management, Bookkeeping, Business Strategy, Marketing: Communications, Finance, Accounting, Financial Accounting, Management Science, Accounts, Statistics, Business Finance, English, Science, Social Studies, Maths, Accountancy

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  1. BAM4013-Financial Decision Making in Business Fundamentals of financial accounting
  2. Financial accounting Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Accounting is concerned with: Recording data; classifying and summarizing data; communicating what has been learned from the data.
  3. Users of accounting information Possible users of accounting information include: • Managers. These are the day-to-day decision-makers. They need to know how well things are progressing financially and about the financial status of the business. • Owner(s) of the business. They want to be able to see whether or not the business is profitable. In addition they want to know what the financial resources of the business are. • A prospective buyer. When the owner wants to sell a business the buyer will want to see such information. The bank. If the owner wants to borrow money for use in the business, then the bank will need such information. Tax inspectors. They need it to be able to calculate the taxes payable. • A prospective partner. If the owner wants to share ownership with someone else, then the would-be partner will want such information. • Investors, either existing ones or potential ones. They want to know whether or not to invest their money in the business.
  4. ACCOUNTING EQUATION Assets Liabilities Owner's Equity The actual resources that are then in the business are called assets. The amount of the resources supplied by the owner is called capital. Liabilities is the name given to the amounts owing to these people for these assets.
  5. Complete the gaps in the following table: 55 , 119 , 88,000 Liabilities 17 , 15 , ? 49 , ? 34 , 400
  6. ASSETS LIABILITIES LIABILITIES ARE CLAIMS ON THE BUSINESS BY OUTSIDERS NON-CURRENT ASSETS • Any tangible or intangible asset acquired on a long-term basis to be used in providing a service to the business. • Not held for resale in the normal course of trading. land and buildings, motor vehicles, plant and machinery. CURRENT ASSETS Assets which are expected to be realised in the business normal course of trading. • Disclosed in the statement of financial position with the least liquid item first (usually inventory). Inventory, receivables, NON-CURRENT LIABILITIES Long term liabilities payable more than 12 months after the reporting CURRENT LIABILITIES Those liabilities which are payable within 12 months of the reporting date payables. bank overdraft. loan term)
  7. Accounting process OCCUR EFFECTS RECORDED IN ACCOUNTS LEDGER ACCOUNTS BALANCED OFF TRIAL BALANCE AN D LEDGER CLOSED
  8. Double entry system of accounting Double-entry bookkeeping is a method of recording transactions where for every business transaction, an entry is recorded in at least two accounts as a debit or credit. In a double-entry system, the amounts recorded as debits must be equal to the amounts recorded as credits. Double-Entry Accounting Balance Sheet Accounts Income Statement Accounts Revenue Increase (+) Decrease Decrease Liabil Credit Increase (+) Debit Decrease Debit Increase (+) Credit Increase (+) Credit Decrease Decrease Owner's u Credit Increase (+) 2013 Com
  9. Journalizing The process of journalizing transactions refers to the initial recording of all the financial transactions of a business. This recording is done by listing journal entries into the journal. Question: Journalise the following transactions in the Journal of Mr. Kiran for the year 2018 _T.-y 1 — Paid R' _ 4000/— J.-y 2 — Sold to 10.000;'— In of NIr_ 0.000
  10. Posting transactions in to ledger accounts and balancing off. After the transactions are recorded in the journal, it is then posted in the principal book called as 'Ledger'. The process of transferring the entries from journal to respective ledger accounts is called ledger posting. Balancing of ledgers is carried to find out differences at the end of the year. 201 s 15 GENERAL JOURNAL Account title and explanation Cash (Sold GENERAL LEDGER Cash 25.000 1/16 26.000
  11. Trial balance A trial balance is a list of all the balances in the nominal ledger accounts. It serves as a check to ensure that for every transaction, a debit recorded in one ledger account has been matched with a credit in another. If the double entry has been carried out, the total of the debit balances should always equal the total of the credit balances. Furthermore, a trial balance forms the basis for the preparation of the main financial statements, the balance sheet and the profit and loss account. Land and üdirws Fnture and Mtngs Machinery and equipment Inventory Debtors Bank Loan Creditors control Sales Sales Returns Cost goods sold Advertising %mbershipteg Water and Telephone Salaries & wages Interest paid BON *store 2012 FOLIO DEBIT CREDIT 400 550 70,000 5670 44030 50 330 1,900 800 moo '71 850
  12. Accounting principles and concepts Accounting Principles *aun-tio print) The rules and guider that companies and bodies must follow Generally accepted accounting principles (GAAP) are uniform accounting principles for private companies and nonprofits in the U.S. These principles are largely set by the Financial Accounting Standards Board (FASB), an independent nonprofit organization whose members are chosen by the Financial Accounting Foundation. International Financial Reporting Standards (IFRS) The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS). These standards are used in more than 120 countries, including those in the European Union (EU)
  13. How does IFRS differ from GAAP? IFRS is a standards-based approach that is used internationally, while GAAP is a rules-based system used primarily in the U.S. IFRS is seen as a more dynamic platform that is regularly being revised in response to an ever-changing financial environment, while GAAP is more static. IFRS P
  14. Accounting concepts 1. BUSINESS ENTITY CONCEPT: This concept assumes that, for accounting purposes, the business enterprise and its owners are two separate independent entities. Thus, the business and personal transactions of its owner are separate. For example, when the owner invests money in the business, it is recorded as liability of the business to the owner. Similarly, when the owner takes away from the business cash/goods for his/her personal use, it is not treated as business expense. 2. MONEY MEASUREMENT CONCEPT: This concept assumes that all business transactions must be in terms Of money. Thus, as per the money measurement concept, transactions which can be expressed in terms of money are recorded in the books of accounts. For example, sale of goods worth $2000. But the transactions which cannot be expressed in monetary terms are not recorded in the books of accounts. For example, sincerity, loyality, honesty of employees are not recorded in books of accounts because these cannot be measured in terms of money although they do affect the profits and losses of the business concern. hill". Business Separate
  15. 3. GOING CONCERN CONCEPT: This concept states that a business firm will continue to carry on its activities for an indefinite period of time Simply stated, it means that every business entity has continuity of life. For example, a company purchases a plant and machinery of $100000 and its life span is 10 years. 4. ACCOUNTING PERIOD CONCEPT As per accounting period concept, all the transactions are recorded in the books of accounts for a specified period of time, Hence, goods purchased and sold during the period, rent, salaries etc. paid for the period are accounted for and against that period only. Eg 1 Jan to 31 dec, 1 April t031 march etc
  16. 5. ACCOUNTING COST CONCEPT: Accounting cost concept states that all assets are recorded in the books of accounts at their purchase price, which includes cost of acquisition, transportation and installation and not at its market price. It means that fixed assets like building, plant and machinery, furniture, etc are recorded in the books of accounts at a price paid for them. For example, a machine was purchased by XYZ Limited for $500,000, for manufacturing shoes. An amount of $1 ,OOO were spent on transporting the machine to the factory site. In addition $2000 were spent on its installation. The total amount at which the machine will be recorded in the books of accounts would be the sum of all these items i.e. $503,000. This cost is also known as historical cost. 6. DUALITY ASPECT CONCEPT: Dual aspect is the foundation or basic principle of accounting. It provides the very basis of recording business transactions in the books of accounts. This concept assumes that every transaction has a dual effect, i.e. it affects two accounts in their respective opposite sides. Therefore, the transaction should be recorded at two places. It means, both the aspects of the transaction must be recorded in the books of accounts. For example, goods purchased for cash has two aspects which are (i) Giving of cash (ii) Receiving of goods. These two aspects are to be recorded.
  17. 7.ACCRUAL CONCEPT This concept states that revenue from any business transaction should be included in the accounting records only when it is realized. The term realisation means creation of legal right to receive money and recording expenses when they are incurred and not when they are paid.Selling goods is realisation, receiving order is not . 8.MATCHlNG CONCEPT: The matching concept states that the revenue and the expenses incurred to earn the revenues must belong to the same accounting period. So once the revenue is realized, the next step is to allocate it to the relevant accounting period. This can be done with the help of accrual concept.

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