Transcript
ACCOUNTINGWHAT YOU NEED TO KNOW
ACCOUNTING DEFINITION
• Recording, classifying, analyzing and summarizing business transaction and
interpreting the results thereof.
Language of business
OBJECTIVE OF ACCOUNTING
To keep systematic record
To establish the results of business operation
To ascertain the financial position of the business
To portray the liquidity position of the business
To safeguard business properties
To protect the rights of stakeholders
To expedite rational decision making
Business Entity
Going Concern
Monetary Unit
Historical Cost
Matching Concept
Accounting Period Conservatism Consistency
Materiality Objectivity Accrual
ACCOUNTING PRINCIPLES
ACCOUNTING PRINCIPLES (CONT.)
• A business is considered a separate entity from the owner(s) and should be treated separately.Business Entity
• It assumes that an entity will continue to operate indefinitely. In this basis, assets are recorded based on their original cost and not on market value.Going Concern
• The business financial transactions recorded and reported should be in monetary unitMonetary Unit
• All business resources acquired should be valued and recorded based on the actual cash equivalent or original cost of acquisition, not the prevailing market value or future value.Historical Cost
ACCOUNTING PRINCIPLES (CONT.)
Accounting Period
• This principle entails a business to complete the whole accounting process of a business over a specific operating time period.
Conservatism
• This principle states that given two options in the valuation of business transactions, the amount recorded should be the lower rather than the higher value.
Consistency
• This principle ensures consistency in the accounting procedures used by the business entity from one accounting period to the next.
ACCOUNTING PRINCIPLES (CONT.)
• Ideally, business transactions that may affect the decision of a user of financial information are considered important or material, thus, must be reported properly.
Materiality
• This principle requires recorded business transactions should have some form of impartial supporting evidence or documentation.
Objectivity
• This principle requires that revenue should be recorded in the period it is earned, regardless of the time the cash is received.
Accrual
STAKEHOLDERS
Internal• Shareholders• Employees• Directors
External• Creditor• Competitors• Community
Government• Tax agency• Enforcement
agency
A stakeholder is any person or entity that has an interest in the success or failure of a business.
WHAT DO WE ACCOUNT FOR?
Assets• Owned (has legal title to the asset)• Provide benefits now and in future
Equity• Ownership of the assets• Amount of the funds contributed by the owners (the
stockholders) plus the retained earnings (or losses)
HOW ITS WORK?
Assets: Cash
EquipmentBuilding
Ownership
Shareholder or Creditor
FINANCIAL STATEMENT
• The financial statements show you the categorized transactions that happened at a point in time.
Income Statement
(Statement of Comprehensive
Income)
Balance Sheet (Statement of
Financial Position)
Statement of Cash Flows
FINANCIAL STATEMENT – INCOME STATEMENT
RevenuesSales
Tax Income
Other Income
ExpensesPurchases
Depreciation
Employees
Interest
FINANCIAL STATEMENT – BALANCE SHEET
• The balance sheet collects everything you own (assets) and owe (liabilities) at a specific point in time resulting from past transactions.
• The balance always needs to balance, hence the name balance sheet
• Fixed Assets• Trade Receivables or Debtors• Inventory• Cash and Bank
Assets• Trade Payable or Creditor• Debt• Equity• Provisions
Liabilities
FINANCIAL STATEMENT – CASH FLOW STATEMENT
• The cash flow statement explains the change in cash from one period to the next period.
Operating Cash Flow
• Cash in-flow and out-flow related to your operative business.
Investing Cash Flow
• Amount of cash you invested into fixed assets.
Financing Cash Flow
• Amount of cash was received from and paid to investors
• Example: debt and equity investors.
Liabilities
Equity
RELATIONSHIP BALANCE SHEET AND INCOME STATEMENT
Assets
Revenues
Expenses
3 STEPS TO RECORD TRANSACTION TO BOOK
• Which accounts affected?• Account increase or decrease?• Show this using T account
DOUBLE ENTRIES CONCEPT
AE CRL
Liabilities
Revenues
Capital (Equity)
Expenses
Assets
DR CR DR CR
COMMON TERMS IN ACCOUNTING BOOK KEEPING
Chart of Account
Set of accounts that makes up the
general ledger
Kind of template for
set of accounts
General Ledger
Financial record of
every transaction of
a company
The content in the
template
Trial Balance
Summary of debit and
credit
Debit = Credit
Journal Entries
Formal accounting e
ntry
Double entries (debit
& credit)
Reconcile Accounts
Proving or documenting
that an account
balance is correct
All individual account =Group account
ACCOUNTING CYCLEIdentify
transactions
Record in journal
Post to ledger
Unadjusted trial balance
Adjusting EntriesAdjusted Trial Balance
Combine the sums of various accounts
Prepare Financial Statements
Closing the books
FINANCIAL MANAGEMENT
Financial management refers to the efficient and
effective management of assets in company.
It is the specialized function directly associated with the top management.
ACCOUNTING VS FINANCIAL MANAGEMENT
Accounting
• For external users• Required by law• Subjected to accounting
standard• Must be accurate and timely
data• Emphasizes the past• Looks at the business as a
whole
Finance Management
• For internal users• Not required by law• Not subjected to accounting
standard• Emphasizes relevance &
flexibility of data• Emphasizes on the future• Focuses on parts as well
HOW FAST YOU CAN GUESS?
STDIBE These are entered on the left side of an account.
HOW FAST YOU CAN GUESS?
IELATISILIB
These accounts will normally have a credit balance.
HOW FAST YOU CAN GUESS?
EENESVUR
Sales are an example of retailers' operating ___________.
HOW FAST YOU CAN GUESS?
DLRGEEAccounts are contained in the general ___________.
HOW FAST YOU CAN GUESS?
NORLAJU
Entries for depreciation are first written in the general ________.
HOW FAST YOU CAN GUESS?
RODEVNAnother term for supplier.
HOW FAST YOU CAN GUESS?
RTDSCEI These are entered on the right side of an account.
HOW FAST YOU CAN GUESS?
UDELOBUnder _________-entry bookkeeping a transaction affects a minimum of two accounts.
HOW FAST YOU CAN GUESS?
UNIAQETO
The accounting or bookkeeping ___________ is Assets = Liabilities + Stockholders' Equity.
HOW FAST YOU CAN GUESS?
YABEALPBona fide invoices from suppliers that are to be paid in 30 days
are reported in Accounts _______.
HOW FAST YOU CAN GUESS?
TSESASThese accounts will normally have debit balances.
HOW FAST YOU CAN GUESS?
NXSEEEPS
These will reduce stockholders' equity.
HOW FAST YOU CAN GUESS?
ILBAIYITLThe type of account that is affected by the accrual of an
expense.
HOW FAST YOU CAN GUESS?
ODCIERRT
One to whom money is owed.
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