Account
- 3. Introduction
Basic functions of
accounting
Important concepts
The basic accounting
equation
Accounting system
History of accounting
Accounting Concepts
Conventions
- 5. ACCOUNTING IS DEFINED AS THE ART OF
RECORDING, CLASSIFYING AND SUMMARIZING
TRANSACTIONS IN MONETARY TERMS (IN MONEY
TERMS) FOR THE PREPARATION OF FINANCIAL
STATEMENTS
JOURNAL
PAYMENT
Vision Enterprises
Financial Statement
at December 31, 1997
Assets
Cash
Account Receivable
Land
Total Assets
Liability
Account Payable
Notes Payable
Total Liability
Stockholder’s Equity
Contributed Capital
Retained Earnings
Total Stockholder’sEquity
$4,456
$5,714
$ 981
---------
$11,151
======
$3,830
$ 416
---------
$4,246
======
$2,365
$ 367
---------
$2,732
======
Vision Enterprises
Financial Statement
at December 31, 1997
Assets
Cash
Account Receivable
Land
Total Assets
Liability
Account Payable
Notes Payable
Total Liability
Stockholder’s Equity
Contributed Capital
Retained Earnings
Total Stockholder’sEquity
$4,456
$5,714
$ 981
---------
$11,151
======
$3,830
$ 416
---------
$4,246
======
$2,365
$ 367
---------
$2,732
======
Vision Enterprises
Financial Statement
at December 31, 1997
Assets
Cash
Account Receivable
Land
Total Assets
Liability
Account Payable
Notes Payable
Total Liability
Stockholder’s Equity
Contributed Capital
Retained Earnings
Total Stockholder’sEquity
$4,456
$5,714
$ 981
---------
$11,151
======
$3,830
$ 416
---------
$4,246
======
$2,365
$ 367
---------
$2,732
======
?
What is Accounting
- 6. ACCOUNTING IS DEFINED AS THE ART OF RECORDING, CLASSIFYING
AND SUMMARIZING TRANSACTIONS IN MONETARY TERMS (IN MONEY
TERMS) FOR THE PREPARATION OF FINANCIAL STATEMENTS
• Recording refers to creating Journal entry for every financial transaction with Debit and Credit
amounts.
• Classifying refers to Classifying each of the Debit / Credit Transaction to Capital or Revenue and
Asset, Liability, Revenue or Expense
• Summarizing refers to Grouping the Transactions of Asset, Liability, Revenue and Expenses
• preparing the Financial Statements which are Trading, Profit and Loss Account and Balance Sheet
• Note:- Trial Balance is not a Financial Statement. It is only a summary of all Debit and Credit Transactions.
- 7. Functions of accounting
• The efficient and effective collection and storage of data
concerning an organization’s financial activities, including
getting the transaction data from source documents, recording
the transactions in journals, and posting data from journals to
ledgers.
• To supply information useful for making decisions, including
producing managerial reports and financial statements.
• To make sure controls are in place to accurately record and
process data.
- 8. Accounting terminology
Person
Transaction
Cash transaction
Credit transaction
Income
Expense
Debit – he owes
Credit – he trust
Supplier
Stock
Customers
Creditors
Debtors
Drawings
Assets – Fixed and
Current
Tangible and Intangible
Assets
Liabilities – long term
and current
Capital
- 9. • Anything tangible or intangible that is capable of being owned or
controlled to produce value and that can be converted
into cash
• Example building, plant and machinery ,cash etc
- 10. • Amount Payable to providers of goods and Services (Creditors)
and Providers of Capital (Owners)
• common examples of liabilities include loans payable, bonds
payable, interest payable, wages payable, and income taxes
payable.
HOME
LOAN
- 12. • Revenue is the income that a company receives from
its normal business activities, usually from the sale of
goods and services to customers.
• Revenue may refer to business income in general, or it
may refer to the amount, in a monetary unit,
• Amount earned out of the Sale Proceeds and the
amount earned on Investments
• Examples of revenue accounts include: Sales, Service
Revenues, Fees Earned, Interest Revenue, Interest
Income.
- 13. A financial benefit that is realized when the amount of
revenue gained from a business activity exceeds the
expenses, costs and taxes needed to sustain the activity.
PROFIT= TOTAL REVENUE – TOTAL EXPENSES
- 14. • a loss is a decrease in net income that is outside the normal
operations of the business.
• Losses can result from a number of activities such as; sale of
an asset for less than its carrying amount, the write-down of
assets, or a loss from lawsuits.
• Total Expenses >Total Revenue =Loss
- 15. • FIXED ASSETS: Amount Invested in Long Term Assets
which is not intended to be sold within a Year
• They are long-term, tangible assets such as land,
equipment, buildings, furniture and vehicles
- 16. • CURRENT ASSETS: Amount invested in Short Term Assets which
is intended and rotated to earn Revenue
• They are the general inventory of a company, including cash,
accounts receivable, insurance claims, investments, and
intangible or non-physical items.
- 19. ACCOUTING EQUATION
The equation that is the foundation of double entry accounting.
The accounting equation displays that all assets are either financed
by borrowing money or paying with the money of the company's
shareholders.
Thus, the accounting equation is:
Assets = Liabilities + Shareholder Equity.
- 20. Revenues, Expenses and Net Income
Revenues – Expenses = Net Income
**Revenue is the income that a company receives from its
normal business activities
**Expense is the Amount incurred or expended to earn the revenue.
- 23. Classification of accounts.
Personal account – Individuals, firms,
limited companies, Local authorities,
local authorities, association
Real Account –Properties, assets
Nominal Account – expenses – losses
& income – gains.
- 24. GOLDEN RULES OF
ACCOUNTING. Personal Account
Debit “the Receiver”
Credit “the Giver”
Examples:
1. Cash paid to Alex
2. Cash received by peter.
- 25. Real Account
Debit “What comes in”
Credit “What goes out”
Examples:
1. Land purchase.
2. Goods sold to Ramesh.
- 26. Nominal Account.
Debit “All the expenses & losses”
Credit “All Income & gains”
Examples:
1. Interest received.
2. Salary account.
- 28. Journal
It records all daily transactions of a business into the order in which
they occur.
A journal may be defined as a book containing a chronological
record of transactions
Book of original records
Process of recording is known as journalizing
- 29. Ledger
The General Ledger
The general ledger
provides up-to-date
balances for each
account, including
accounts payable and
receivable.
In a computerized system, electronic files are still
referred to as a ledger, or the ledger accounts.
Managers use ledgers to obtain summarized
information.
general ledger
A permanent record organized by account number.
- 30. Posting.
Posting is the process by which
random transactions become
organized in a manner
according to accounts.
posting
The process of transferring
information from the journal to
individual general ledger
accounts.
- 31. Accounting Cycle
Accounting cycle is a step-by-step process of recording,
classification and summarization of economic transactions
of a business. It generates useful financial
information in the form of financial statements including
income statement, balance sheet, cash flow statement and
statement of changes in equity.
The time period principle requires that a business should
prepare its financial statements on periodic basis. Therefore
accounting cycle is followed once during each
accounting period. Accounting Cycle starts from the
recording of individual transactions and ends on the
preparation of financial statements and closing entries.
- 33. Major Steps in Accounting Cycle
Following are the major steps involved in the accounting cycle. We
will use a simple example problem to explain each step.
1.Analyzing and recording transactions via journal entries
2.Posting journal entries to ledger accounts
3.Preparing unadjusted trial balance
4.Preparing adjusting entries at the end of the period
5.Preparing adjusted trial balance
6.Preparing financial statements
7.Closing temporary accounts via closing entries
8.Preparing post-closing trial balance