Accounting

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Principles of Principles of

AccountingAccounting A Business

Perspective

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Some Important TermsSome Important Terms Transaction: Any dealing between two Transaction: Any dealing between two

parties for exchange of products, parties for exchange of products, services etc. ( Cash & Credit).services etc. ( Cash & Credit).

Business: is any activity that is for the Business: is any activity that is for the purpose of earning profit. purpose of earning profit.

Proprietor: is the owner of the Proprietor: is the owner of the business. He invest capital in business. He invest capital in business. business.

Drawings: The cash or goods taken Drawings: The cash or goods taken away by the owner.away by the owner.


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Some Important TermsSome Important Terms Purchases: Goods procured are called Purchases: Goods procured are called

purchases. (Cash & Credit)purchases. (Cash & Credit) Purchases Returns: returned outwards Purchases Returns: returned outwards

(defective)(defective) Sales: Goods sold are called sales. (Cash & Sales: Goods sold are called sales. (Cash &

Credit)Credit) Sales Returns: Returned inwardsSales Returns: Returned inwards(defective)(defective). . Trade discount: allowance from the scheduled Trade discount: allowance from the scheduled

price granted by seller to buyer. price granted by seller to buyer. Cash Discount: allowance by creditor to debtor. Cash Discount: allowance by creditor to debtor.

If someone pays his debt before due date. He If someone pays his debt before due date. He might get an allowance for doing so. might get an allowance for doing so.


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Some Important TermsSome Important Terms Commission: it is a form of remuneration Commission: it is a form of remuneration

for services performed by one party to for services performed by one party to another.another.

Expenditure: it happens when an asset or Expenditure: it happens when an asset or service is required. service is required.

Expense: it is an expenditure where the Expense: it is an expenditure where the benefit is expired in the present but may benefit is expired in the present but may provide benefit in future. provide benefit in future.

Account: summarized record of Account: summarized record of transactions relating to a person or transactions relating to a person or thing. thing.


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Some Important TermsSome Important Terms

Debtor: also called account receivable. A Debtor: also called account receivable. A person who owes money to another. person who owes money to another.

Creditor: also called account payable. A Creditor: also called account payable. A person who pays out money to another. person who pays out money to another.

Asset: Things of value owned by a trader. Asset: Things of value owned by a trader. Tangible assts Tangible assts

Current Asst.Current Asst. Fixed Asst Fixed Asst

Intangible assets (Financial Assets)Intangible assets (Financial Assets)


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Accounting Period Accounting Period

ACCOUNTING PERIODACCOUNTING PERIOD. The normal . The normal calendar duration for reporting of calendar duration for reporting of financial information. The time for financial information. The time for closing accounts when closing accounts when accountingaccounting data are summarized data are summarized

Sales Sales Profit or LossProfit or Loss Expense Expense Procurement of assets, raw materials Procurement of assets, raw materials Tax, etc Tax, etc


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What is accounting?What is accounting? Accounting is the Language of Accounting is the Language of

Business. It describes all types of Business. It describes all types of business activities. Cost, Price, sales business activities. Cost, Price, sales volume, Profit, etc.volume, Profit, etc.

Accounting is the Process of Accounting is the Process of Observing, identifying, measuring, Observing, identifying, measuring, recording, classifying, summarising recording, classifying, summarising and reporting the financial and reporting the financial information to its users in the form information to its users in the form financial statements.financial statements.


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What is accounting What is accounting system? system?

A/C system is consist of (personal, A/C system is consist of (personal, procedures, devices, and records used procedures, devices, and records used by organization. (1) to develop A/C by organization. (1) to develop A/C information. (2) to communicate this info information. (2) to communicate this info to decision makers. to decision makers.

Every organization needs good records Every organization needs good records that show where its money comes from, that show where its money comes from, where it goes, and how the organization where it goes, and how the organization is performing financially. The system is performing financially. The system used for this purpose is called the used for this purpose is called the organization's accounting system.organization's accounting system.


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Basic Functions of A/C Basic Functions of A/C systemsystem

Interpret and record the effect Interpret and record the effect of Business transactions of Business transactions

Protect & Legal Requirements Protect & Legal Requirements Classify the effect of similar Classify the effect of similar

transactions. transactions. Summarize and communicate Summarize and communicate

the info to decision makers. the info to decision makers.


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WHAT YOU WANT FROM YOU’RE A/C WHAT YOU WANT FROM YOU’RE A/C SYSTEMSYSTEM

The kind of information we The kind of information we found in the prior examples is found in the prior examples is what you want from your what you want from your accounting system. This accounting system. This feedback must feedback must

Be accurate Be accurate Fulfill management's requirements Fulfill management's requirements Be easy to useBe easy to use


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Financial A/C Financial A/C informationinformation

Operation Information:Operation Information: It is required to conduct an It is required to conduct an organization’s day-to-day activities.organization’s day-to-day activities.

1.1. Financial AccountingFinancial Accounting: is intended both for internal & : is intended both for internal & external parties of the organization, including external parties of the organization, including shareholders, stockholders, bankers and other creditors, shareholders, stockholders, bankers and other creditors, government agencies, and the general public.government agencies, and the general public.

2.2. Management AccountingManagement Accounting: The accounting information : The accounting information specifically prepared to aid managers is called specifically prepared to aid managers is called management accounting information.management accounting information.

3.3. Cost AccountingCost Accounting: it is to ascertain the cost of products. : it is to ascertain the cost of products. And help mgt in control of cost. And help mgt in control of cost.

4.4. Tax AccountingTax Accounting: : To a great extend, tax returns are based To a great extend, tax returns are based upon financial accounting informationupon financial accounting information. The most . The most challenging aspect of tax accounting is not the preparation challenging aspect of tax accounting is not the preparation of an income tax return but rather tax planning of an income tax return but rather tax planning


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What is the purpose of What is the purpose of A/C? A/C?

To provide information for decision To provide information for decision making purposes. making purposes.

The final product of accounting The final product of accounting information is the decision. information is the decision.

The accounting

process

The accounting Information

The Decision Maker

The Economic activities


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Single Entry Vs. Double Single Entry Vs. Double Entry Entry

Advantages of Double Entry System:Advantages of Double Entry System: In order to be sure that our accounts are correct, we can make a Trail In order to be sure that our accounts are correct, we can make a Trail

balance.balance. Easily we can calculate our profit or lossEasily we can calculate our profit or loss Because the transactions enter in a systematic way therefore it can be Because the transactions enter in a systematic way therefore it can be

or reliable.or reliable. Avoids falsity even in very complicated transactions.Avoids falsity even in very complicated transactions. A business can see the different accounts of its activities and can make A business can see the different accounts of its activities and can make

good decisions.good decisions. Disadvantage of Double Entry System:Disadvantage of Double Entry System:

Double entry system needs some accounting books to be kept in an Double entry system needs some accounting books to be kept in an office and it is very difficult for a small business for maintaining of these office and it is very difficult for a small business for maintaining of these books.books.

Due to maintaining of some accounting books, double entry system is Due to maintaining of some accounting books, double entry system is more costly.more costly.

Although we have trail balance, but we can not guarantee the accuracy Although we have trail balance, but we can not guarantee the accuracy of double entry system.of double entry system.

Single Entry:Single Entry: The Single entry system is completely different from double entry The Single entry system is completely different from double entry

system. system. www.imstudies.vze.com

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ACCOUNTING FOR THE BUSINESS ACCOUNTING FOR THE BUSINESS CYCLECYCLE

The business cycle is nothing more than the flow of The business cycle is nothing more than the flow of transactions needed in your business to complete a transactions needed in your business to complete a sale and collect the proceeds. It's important to setting sale and collect the proceeds. It's important to setting up your accounting system. We want to know what up your accounting system. We want to know what types of transactions are involved and the accounting types of transactions are involved and the accounting entries to make along the way. Most companies entries to make along the way. Most companies business cycles progress something like this: business cycles progress something like this: 1.Purchase raw materials. 1.Purchase raw materials.

2.Enter goods into raw materials inventory. 2.Enter goods into raw materials inventory. 3.Begin the manufacturing or assembly process. 3.Begin the manufacturing or assembly process. 4.Enter goods into work in process inventory. 4.Enter goods into work in process inventory. 5.Pay suppliers or pay employees (at service companies). 5.Pay suppliers or pay employees (at service companies). 6.Complete the manufacturing or assembly process. 6.Complete the manufacturing or assembly process. 7.Enter goods into finished goods inventory. 7.Enter goods into finished goods inventory. 8.Sell the inventory. 8.Sell the inventory. 9.Collect payment for credit sales. 9.Collect payment for credit sales.

Briefly, here is the way your accounting system Briefly, here is the way your accounting system interacts at each stage of the business cycle. interacts at each stage of the business cycle.


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Accounting Principles Accounting Principles Accounting Principles: are rules of action Accounting Principles: are rules of action

or conduct that are adopted by accountants or conduct that are adopted by accountants universally while recording accounting universally while recording accounting transactions. It becomes essential that transactions. It becomes essential that common principles should be followed for common principles should be followed for measuring business revenues and expenses measuring business revenues and expenses similarly. similarly.

Essential Features of Accounting Principles Essential Features of Accounting Principles Usefulness: A.P. should be able to provide useful Usefulness: A.P. should be able to provide useful

info to its users otherwise it will not serve the info to its users otherwise it will not serve the purpose. purpose.

Objectivity: A.P. is objective if it is based on facts Objectivity: A.P. is objective if it is based on facts and figures. This should not be influenced by and figures. This should not be influenced by personal bias of users. personal bias of users.

Feasibility: A.P. should be practical. The Feasibility: A.P. should be practical. The principles should be easy to use otherwise their principles should be easy to use otherwise their utility will be limited. utility will be limited. www.imstudies.vze.co

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Accounting Concept: Accounting Concept: The term The term concept include those basic concept include those basic assumptions/conditions upon which assumptions/conditions upon which accounting is based.accounting is based.

1.1. Business Entity ConceptBusiness Entity Concept2.2. Going Concern Concept Going Concern Concept 3.3. Money Measurement concept Money Measurement concept 4.4. Cost conceptCost concept5.5. Duel Aspect Concept Duel Aspect Concept 6.6. Accounting Period Concept Accounting Period Concept 7.7. Matching Concept Matching Concept 8.8. Realizatio concept Realizatio concept

Classification of accounting Classification of accounting Principles Principles


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Accounting ConventionsAccounting Conventions1.1. Convention of Disclosers Convention of Disclosers 2.2. Convention of Materiality Convention of Materiality 3.3. Convention of Consistency Convention of Consistency 4.4. Convention of Conservatism Convention of Conservatism

Classification of accounting Classification of accounting Principles Principles


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1.1. Business Entity Concept: In accounting Business Entity Concept: In accounting business is treated as separate entity business is treated as separate entity from its owners. A distinction is made from its owners. A distinction is made between business & personal between business & personal transactions. The accountants records transactions. The accountants records the transactions related to business only. the transactions related to business only.

2.2. Going Concern Concept: as per this Going Concern Concept: as per this concept it is assumed that the business concept it is assumed that the business will exist for a long time to come. will exist for a long time to come. Transactions are recorded in the books Transactions are recorded in the books of accounts in the view of going concern of accounts in the view of going concern of the business. The business should of the business. The business should continue to operate at its present scale continue to operate at its present scale in the foreseeable future. in the foreseeable future.

Accounting ConceptAccounting Concept


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3.3. Money Measurement concept: Accounting Money Measurement concept: Accounting records only those transactions which can records only those transactions which can be expressed in the term of money. None be expressed in the term of money. None monetary transactions don’t find place in monetary transactions don’t find place in books of accounts. books of accounts.

4.4. Cost concept: In the books of account the Cost concept: In the books of account the assets should be recorded at its cost price. assets should be recorded at its cost price. The cost price should not be confused The cost price should not be confused with its market value. The records with its market value. The records becomes more reliable and comparable. becomes more reliable and comparable.

5.5. Duel Aspect Concept: this concept states Duel Aspect Concept: this concept states that very every Debit there is a credit. that very every Debit there is a credit. Every transaction should have two sided Every transaction should have two sided effect to the extent of same amount. effect to the extent of same amount.



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6.6. Accounting Period Concept: The life of the Accounting Period Concept: The life of the business is divided in to appropriat business is divided in to appropriat segments for studying the results shown by segments for studying the results shown by the business after each segment. the business after each segment.

7.7. Matching Concept: The Revenue and costs Matching Concept: The Revenue and costs of same period are matched. The business of same period are matched. The business during a period can be measured only during a period can be measured only when the revenue earned during a period when the revenue earned during a period is compared with expenditure incurred for is compared with expenditure incurred for earning that revenue. earning that revenue.

8.8. Realization concept: This means the profit Realization concept: This means the profit should be considered only when realized. should be considered only when realized. The revenue is earned only when the goods The revenue is earned only when the goods are transferred to buyer. are transferred to buyer.



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Accounting ConventionsAccounting Conventions1.1. Convention of Disclosers: It implies that accounts should Convention of Disclosers: It implies that accounts should

be prepared in such a way that all materials are clearly be prepared in such a way that all materials are clearly disclosed to readers. It means sufficient disclosures of info disclosed to readers. It means sufficient disclosures of info (included in F statements) to proprietors, creditors & (included in F statements) to proprietors, creditors & investors. investors.

2.2. Convention of Materiality: Only those events/items should Convention of Materiality: Only those events/items should be recorded which is important. The unimportant info has be recorded which is important. The unimportant info has to be ignored. It is left to the accountant for taking a to be ignored. It is left to the accountant for taking a decision. decision.

3.3. Convention of Consistency: The accounting practices Convention of Consistency: The accounting practices should remain unchanged from one period to another. If a should remain unchanged from one period to another. If a change occurs in the principles this has to be reflected in change occurs in the principles this has to be reflected in the books of accounts. This is important for the purpose of the books of accounts. This is important for the purpose of comparison. comparison.

4.4. Convention of Conservatism: This means a caution Convention of Conservatism: This means a caution approach policy. If there is a possibility of loss it should be approach policy. If there is a possibility of loss it should be taken in to account at the earliest. On the other hand a taken in to account at the earliest. On the other hand a prospect of profit should be ignored upto the time it does prospect of profit should be ignored upto the time it does materialize. materialize. www.imstudies.vze.co

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Nature of AccountsNature of Accounts Classification of Accounts: To record a Classification of Accounts: To record a

transaction in books of accounts This has to be transaction in books of accounts This has to be identified which account to be debited and identified which account to be debited and which one to be credited. There are three which one to be credited. There are three classes of accounts classes of accounts

1.1. Personal accounts:Personal accounts: Are accounts relating to Are accounts relating to persons or firms as (Rahman’s account, Habib persons or firms as (Rahman’s account, Habib bank account, salaries outstanding account).bank account, salaries outstanding account).

2.2. Real or propertyReal or property accounts: Are accounts to accounts: Are accounts to keep record of properties or things owned by a keep record of properties or things owned by a trader like ( building, lands, vehicle, cash, trader like ( building, lands, vehicle, cash, inventory etc)inventory etc)

3.3. Nominal or proprietary accountsNominal or proprietary accounts: These : These accounts have no existence mere in name that accounts have no existence mere in name that records expenses, gains and losses records expenses, gains and losses like( salaries, wages, rent, repair, interest, like( salaries, wages, rent, repair, interest, discount etc) discount etc) www.imstudies.vze.co

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Basic Terms and Basic Terms and Concepts Concepts

Debits and Debits and CreditsCredits

Assets Assets LiabilitiesLiabilities Owners' equityOwners' equity Income Income ExpensesExpenses


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AssetsAssets

Simply stated, assets are those things Simply stated, assets are those things of value that your company owns. The of value that your company owns. The cash in your bank account is an asset. cash in your bank account is an asset. Assets are the objects, rights and Assets are the objects, rights and claims owned by and having value for claims owned by and having value for the firm the firm

Current Asset Current Asset ((Cash, convertible to cash, used up Cash, convertible to cash, used up during the year/operating cycle, e.g. inventory, accounts during the year/operating cycle, e.g. inventory, accounts receivable, prepaid expenses.)receivable, prepaid expenses.)

Fixed assets ( Assets with useful life of Fixed assets ( Assets with useful life of more that a year) more that a year) www.imstudies.vze.co

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LiabilitiesLiabilities Think of liabilities as the opposite of assets. Think of liabilities as the opposite of assets.

These are the obligations of one company to These are the obligations of one company to another. Accounts payable are liabilities, another. Accounts payable are liabilities, since they represent your company's future since they represent your company's future duty to pay a vendor. So is the loan you duty to pay a vendor. So is the loan you took from your bank. If you were a bank, took from your bank. If you were a bank, your customer's deposits would be a your customer's deposits would be a liability, since they represent future claims liability, since they represent future claims against the bank (right of creditor)against the bank (right of creditor)

Short termShort term Long term Long term


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Owners' equityOwners' equity

Total Total assetsassets minus total minus total liabilitiesliabilities of of an individual or a company, is an individual or a company, is also also calledcalled net worth or shareholders' net worth or shareholders' equity or net assets. This is the claim equity or net assets. This is the claim against the assets of the firm. (The against the assets of the firm. (The right to the properties) or (right of right to the properties) or (right of owners).owners).

Partners' capital accounts Partners' capital accounts Stock Stock Retained earningsRetained earnings


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IncomeIncome

Income accounts: Income accounts: Revenue – total Revenue – total cost/expense is cost/expense is in comein come. If you have several . If you have several lines of business, you'll probably want to lines of business, you'll probably want to establish an income account for each. In that establish an income account for each. In that way, you can identify exactly where your way, you can identify exactly where your income is coming from. Adding them together income is coming from. Adding them together yields total revenue. yields total revenue.

Sales revenue from product A Sales revenue from product A Sales revenue from product B (and so on for each product to Sales revenue from product B (and so on for each product to

track) track) Interest income Interest income Income from sale of assets Income from sale of assets Consulting income Consulting income


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Expense AccountsExpense Accounts Expense accounts: Expense accounts: Expense is a cost whose Expense is a cost whose

benefit is finished or completely utilized. benefit is finished or completely utilized. however the benefit will be obtained in however the benefit will be obtained in future activities of the firm. Expense reduces future activities of the firm. Expense reduces the income. Typical expense accounts the income. Typical expense accounts include include

Salaries and wages Salaries and wages Telephone Telephone Electric utilities Electric utilities Repairs Repairs Maintenance Maintenance Depreciation Depreciation Amortization Amortization Interest Interest RentRent


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Debits and CreditsDebits and Credits

Account Debit CreditAccount Debit Credit__________________________________________________________

Assets Increases DecreasesAssets Increases DecreasesExpenses Increases Decreases Expenses Increases Decreases

Liabilities Decreases IncreasesLiabilities Decreases IncreasesIncome Decreases IncreasesIncome Decreases Increases


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Journal Journal The journal is a chronological (day-by-day) The journal is a chronological (day-by-day)

record of transactions. The information record of transactions. The information recorded about each transaction includes recorded about each transaction includes the date of the transaction, the debit and the date of the transaction, the debit and credit changes in specific ledger accounts, credit changes in specific ledger accounts, and a brief explanation of the transaction.and a brief explanation of the transaction.

Why Use a Journal?Why Use a Journal? The journal shows all information about a The journal shows all information about a

transaction in one place and also provides transaction in one place and also provides an explanation of the transaction.an explanation of the transaction.

The journal provides a chronological record The journal provides a chronological record of all the events in the life of a business.of all the events in the life of a business.

The use of a journal helps to prevent errors.The use of a journal helps to prevent errors.


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Journal Journal GENERAL JOURNAL Page 001

Date Explanation LP Debit Credit 2004

March 1 Cash 1 8 0 0 0 0 James Robert, Capital 1 8 0 0 0 0 James Roberts invested cash in business. 2 Land 1 4 1 0 0 0 Cash 1 4 1 0 0 0 Purchased land for cash 5 Building 3 6 0 0 0 Cash 1 5 0 0 0 Accounts Payable 2 1 0 0 0 Purchased building from ABC company 10 Accounts receivable 1 1 0 0 0 Land 1 1 0 0 0 Sold a part of land to XYZ company. 14 Office Equipment 5 4 0 0 Account Payable 5 4 0 0 Purchased on credit from STU Company 20 Cash 1 5 0 0 Account Receivable 1 5 0 0 Received as partial collection from XYZ. 30 Account Payable 3 0 0 0 Cash 3 0 0 0 Paid to ABC on partial payment.

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The Ledger The Ledger The ledger is a book which contains a The ledger is a book which contains a

classified record of all transactions of classified record of all transactions of business generally transferred or business generally transferred or posted from the books of original posted from the books of original entry / General Journal. entry / General Journal.

The ledger is called the king of all The ledger is called the king of all books of accounts because all the books of accounts because all the entries from the books of original entry entries from the books of original entry must be posted to the various accounts must be posted to the various accounts of ledger. It should be noted that of ledger. It should be noted that journal is a date wise record while journal is a date wise record while ledger is a classified record of all ledger is a classified record of all business transactions. business transactions.


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The Ledger The Ledger Cash James Robert, Capital

9/1 (a) 180,000 9/1 (a) 180,000 Cash Land 9/1 180,000 9/3 (b) 141,000 9/3 (b) 141,000

Cash Accounts Payable

9/1 180,000 9/3 141,000 9/5 (c) 21,000 9/5 (c) 15,000

Building 9/5 (c) 36,000 A/C receivable Land 9/10 (d) 11,000 9/3 141,000 9/10 (d) 11,000


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Banking Banking A banker is a dealer in capital / A banker is a dealer in capital /

money. He is an intermediate money. He is an intermediate party between the borrower and party between the borrower and the lender. He borrows from the lender. He borrows from one party and lends to another. one party and lends to another.

Banks gather idle money for the Banks gather idle money for the purpose of lending to others purpose of lending to others and investment which bring and investment which bring gain in the form return (profit gain in the form return (profit and dividends). and dividends).


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Banker’s FundBanker’s Fund

Bank’s Capital: Bank’s Capital: The amount with The amount with which a banking firm is registered is which a banking firm is registered is called the authorized capital. called the authorized capital. Paid up CapitalPaid up Capital: is the portion of : is the portion of

capital which the banking company has capital which the banking company has actually received from the public. actually received from the public.

Subscribed CapitalSubscribed Capital: is that part of the : is that part of the issued capital which is applied for by the issued capital which is applied for by the public, including shares issued by public, including shares issued by vendors or promoters. vendors or promoters.


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Banker’s FundBanker’s Fund

The Reserve fund:The Reserve fund: is the accumulated is the accumulated un-divided trading profits set aside to un-divided trading profits set aside to provide for contingencies and any provide for contingencies and any unusual call upon bank’s resources. unusual call upon bank’s resources.

Liquid Asset: Liquid Asset: under legal obligations under legal obligations each bank has to maintaineach bank has to maintain a certain a certain amount of liquid assets such as money amount of liquid assets such as money at call, gold & bullion, securities, at call, gold & bullion, securities, money at call or short notice. money at call or short notice.


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Functions of BanksFunctions of Banks Primary function: It is borrowing and lending Primary function: It is borrowing and lending

money. money. General utility Function: Banks also perform General utility Function: Banks also perform

functions for the benefit of the public. A) functions for the benefit of the public. A) Issue important documents. B) finance import Issue important documents. B) finance import and export trade of the country. C) keeps and export trade of the country. C) keeps valuable things & papers in safe custody. valuable things & papers in safe custody.

Agency Function: A) collect & pay checks on Agency Function: A) collect & pay checks on behalf of their customers. B) they realize behalf of their customers. B) they realize interest & dividend on B. C. C) They pay interest & dividend on B. C. C) They pay subscriptions and insurance premium on B C. subscriptions and insurance premium on B C. D) They act as referees for their customers. D) They act as referees for their customers.


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Bank AccountsBank Accounts Current account: The customer can deposit and Current account: The customer can deposit and

withdraw money as and when he likes. There is withdraw money as and when he likes. There is no interest rate on this type of account. no interest rate on this type of account.

Saving Account: This type of account is to make Saving Account: This type of account is to make profit. In this type of account the amount of the profit. In this type of account the amount of the deposit is usually a certain amount. And deposit is usually a certain amount. And withdrawals could be done twice or three times withdrawals could be done twice or three times a week. a week.

Fixed Deposit Account: in this type of account a Fixed Deposit Account: in this type of account a certain amount is deposited for a specified certain amount is deposited for a specified period of time for example 6 months or one period of time for example 6 months or one year. year.


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Bank LoansBank Loans Overdraft: The customer is allowed to Overdraft: The customer is allowed to

borrow an agreed amount in excess of the borrow an agreed amount in excess of the customer’s bank balance. The customer customer’s bank balance. The customer has to pay interest on an agreed rate on has to pay interest on an agreed rate on the amount overdrawn by the borrower. the amount overdrawn by the borrower.

Loans: A loan is made when a bank Loans: A loan is made when a bank advances a particular amount of money for advances a particular amount of money for a specified period of time. The borrower a specified period of time. The borrower has to pay the interest whether he make has to pay the interest whether he make use of the total or part of the overall loan. use of the total or part of the overall loan.


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Check / ChequeCheck / Cheque

Check Book: It is supplied by the Check Book: It is supplied by the bank that enables a customer to bank that enables a customer to make withdrawals from his account make withdrawals from his account to various parties by issuing check. to various parties by issuing check.

Check / Cheque: it is an unconditional Check / Cheque: it is an unconditional order in writing drawn by customer order in writing drawn by customer on his bank, requesting to pay on on his bank, requesting to pay on demand a certain amount of money to demand a certain amount of money to a person named in the check. a person named in the check.


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Kinds of Check / ChequeKinds of Check / Cheque

Bearer Check: The phrase “bearer” is written Bearer Check: The phrase “bearer” is written after the name of payee. It is payable to the after the name of payee. It is payable to the bearer. Any one who present it at the bank. bearer. Any one who present it at the bank.

Order Check: it is a check where the word Order Check: it is a check where the word order is written after the name of payee. It is order is written after the name of payee. It is made payable to a particular person or order. made payable to a particular person or order. It can be transferred by endorsement and It can be transferred by endorsement and delivery. delivery.

Cross check: Two parallel lines are drawn Cross check: Two parallel lines are drawn across the face of a check. A crossed check across the face of a check. A crossed check cannot be cashed at the counter but can be cannot be cashed at the counter but can be collected only by a bank from the drawee collected only by a bank from the drawee bank. The crossing may be general or special. bank. The crossing may be general or special.


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Dishonor of Check / Dishonor of Check / ChequeCheque

When the check is paid by the Drawee When the check is paid by the Drawee bank. It is said to be honored. When is not bank. It is said to be honored. When is not paid it is called to be dishonored. The check paid it is called to be dishonored. The check is returned by the bank with a print slip is returned by the bank with a print slip showing the reason for dishonor. showing the reason for dishonor. Not sufficient FundsNot sufficient Funds Payee endorsement required Payee endorsement required Drawer signature differs.Drawer signature differs. Alteration require full signaturesAlteration require full signatures Check post or out datedCheck post or out dated Amount in words and figure differAmount in words and figure differ


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Endorsement Endorsement

Endorsement of Check: The word Endorsement of Check: The word endorsement means signing on the back of endorsement means signing on the back of the negotiable instrument to transfer the the negotiable instrument to transfer the ownership to another party (called endorsee). ownership to another party (called endorsee). Rules for endorsementRules for endorsement Endorsement should be made on the back side of a Endorsement should be made on the back side of a

negotiable instrument. negotiable instrument. Endorsement should be done by the person himself Endorsement should be done by the person himself

or by his duly assigned agent.or by his duly assigned agent. The person making the endorsement must sign his The person making the endorsement must sign his

name exactly as it has been written on the face of name exactly as it has been written on the face of the instrument. the instrument.


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RemittancesRemittances

Bank Draft: Bank draft is the mean of Bank Draft: Bank draft is the mean of transferring money from one place to another. It transferring money from one place to another. It is an order drawn by a bank on one of its is an order drawn by a bank on one of its branches requesting the later to pay a specified branches requesting the later to pay a specified sum of money to the person named in the draft. sum of money to the person named in the draft. It usually corresponds with a check. It usually corresponds with a check.

Hundis: A hundi is exactly like a bank draft. It is Hundis: A hundi is exactly like a bank draft. It is drawn by a trading firm upon its branches for drawn by a trading firm upon its branches for book keeping. book keeping.

Postel orders: Postal orders are also written Postel orders: Postal orders are also written orders made by one post office on another. When orders made by one post office on another. When the amount of money to be sent is small. Postal the amount of money to be sent is small. Postal orders serve the same purpose as bank drafts. orders serve the same purpose as bank drafts.


08/04/23 45

Bill of ExchangeBill of Exchange Bill of exchange is an unconditional order in Bill of exchange is an unconditional order in

writing addressed by one person to another, writing addressed by one person to another, signed by the person giving it, requiring, the signed by the person giving it, requiring, the person to whom it is addressed to pay on person to whom it is addressed to pay on demand or at a fixed or determinable future demand or at a fixed or determinable future time. ( a certain sum of money to a specified time. ( a certain sum of money to a specified person or bearer). person or bearer).

An inland bill is a bill payable/drawn within An inland bill is a bill payable/drawn within the country. the country.

A Foreign bill is one which is drawn within A Foreign bill is one which is drawn within the country, but accepted & payable outside the country, but accepted & payable outside country. Or drawn outside the country but country. Or drawn outside the country but accepted & payable inside country. accepted & payable inside country.


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How Bill of Exchange How Bill of Exchange functions?functions?

A merchant can hardly afford to be out of A merchant can hardly afford to be out of funds for long, moreover to sell goods on funds for long, moreover to sell goods on credit is rather a risky job. Therefore credit is rather a risky job. Therefore when A sells goods to B. A draws bill and when A sells goods to B. A draws bill and send it to B for acceptance. B approves send it to B for acceptance. B approves the bill and also binds himself to pay the the bill and also binds himself to pay the amount thereof when due. The bill is thus amount thereof when due. The bill is thus complete and comes back to A to remain complete and comes back to A to remain in his possession till maturity or can be in his possession till maturity or can be endorsed or discounted by him. On due endorsed or discounted by him. On due date the bill is handed to its acceptor for date the bill is handed to its acceptor for collection of payment. collection of payment.


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Advantages of Bill of Advantages of Bill of ExchangeExchange

It is a legal evidence of debt.It is a legal evidence of debt. It is a convenient method for the TRF of debt.It is a convenient method for the TRF of debt. A creditor can sue on the bill itself.A creditor can sue on the bill itself. It is negotiable instrument and can be It is negotiable instrument and can be

transferred for settlement of one’s debit without transferred for settlement of one’s debit without difficulty. difficulty.

It can be cashed before due date by discounting.It can be cashed before due date by discounting. A debtor enjoys the benefit of full period of A debtor enjoys the benefit of full period of

credit.credit. It an easy means of transmitting money from It an easy means of transmitting money from

one place to another. one place to another. www.imstudies.vze.com

08/04/23 48

Difference between B/E Difference between B/E & P/N& P/N

Promissory NotePromissory Note It is promise to pay.It is promise to pay. There are two parties There are two parties

the drawer and the drawer and payee.payee.

There is no need of There is no need of acceptance acceptance

The maker is The maker is primarily liable.primarily liable.

Protesting is not Protesting is not necessary after necessary after dishonor. dishonor.

Bill of ExchangeBill of Exchange It is an order to pay.It is an order to pay. There are three There are three

parties the drawer, parties the drawer, drawee and payee.drawee and payee.

It must be acceptedIt must be accepted The drawer is not The drawer is not

primarily liable.primarily liable. A foreign bill must be A foreign bill must be

Protested upon Protested upon dishonor.dishonor.


08/04/23 49

Difference between B/E Difference between B/E & Check& CheckCheckCheck

It is drawn on a It is drawn on a bankerbanker

It has three parties It has three parties the drawer, drawee and the drawer, drawee and payee.payee.

It doesn’t require It doesn’t require acceptance by drawee. acceptance by drawee.

Days of grace is not Days of grace is not allowed to bankerallowed to banker

No stamp duty is No stamp duty is payable on checks.payable on checks.

It is usually drawn on It is usually drawn on the printed forms the printed forms supplied by the supplied by the banker. banker.

Bill of ExchangeBill of Exchange It may be drawn on any It may be drawn on any

party or individual.party or individual. It has three parties the It has three parties the

drawer, drawee and drawer, drawee and payee.payee.

It must be accepted by It must be accepted by drawee, before he can be drawee, before he can be made liable to pay the made liable to pay the bill. bill.

Three days of grace are Three days of grace are always allowed to the always allowed to the drawee. drawee.

Stamp duty has to be paid Stamp duty has to be paid on B/E.on B/E.

It may be drawn on any It may be drawn on any paper and need not paper and need not necessarily be printed. necessarily be printed.


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Sub-division of JournalSub-division of Journal In large businesses it is found in In large businesses it is found in

convenient to journalize every convenient to journalize every transactions or sometimes transactions or sometimes impossible for one man journalize impossible for one man journalize numerous transactions of a numerous transactions of a business in one Journal. business in one Journal.

Thus the journal is sub-divided into Thus the journal is sub-divided into several journals known as several journals known as subsidiary books, or books of subsidiary books, or books of primary / original entry in classified primary / original entry in classified manner. manner.


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Kinds of Subsidiary Kinds of Subsidiary booksbooks

1.1. Cash book: It is used to record all cash receipts Cash book: It is used to record all cash receipts an payments. an payments.

2.2. Purchase Book: It is used to record all credit Purchase Book: It is used to record all credit purchases.purchases.

3.3. Sales Book: It is used to record all credit sales.Sales Book: It is used to record all credit sales.4.4. Purchase return Book: It is used to record all Purchase return Book: It is used to record all

goods returned by us to our suppliers. goods returned by us to our suppliers. 5.5. Sales return Book: It is used to record all goods Sales return Book: It is used to record all goods

returned to us by our customers.returned to us by our customers.6.6. Bills receivable Book: It is used to record all Bills receivable Book: It is used to record all

accepted bills received by us. accepted bills received by us. 7.7. Bills Payable Book: It is used to record all bills Bills Payable Book: It is used to record all bills

accepted by us to our creditors. accepted by us to our creditors. 8.8. General Journal: It used record those General Journal: It used record those

transactions for which there is no separate book.transactions for which there is no separate book.www.imstudies.vze.com

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Advantages of Subsidiary Advantages of Subsidiary booksbooks

1.1. Subsidiary books records the details of the Subsidiary books records the details of the transactions and helps the ledger to become transactions and helps the ledger to become brief. brief.

2.2. Similar transactions are recorded together in Similar transactions are recorded together in one book, thus future references to any of them one book, thus future references to any of them becomes easy. becomes easy.

3.3. As each Journal contains separately As each Journal contains separately transactions of similar nature any desired transactions of similar nature any desired analysis can be made conveniently. analysis can be made conveniently.

4.4. The chance of fraudulent alteration in an The chance of fraudulent alteration in an account is reduced as the book of account is reduced as the book of original entry keeps the record in original entry keeps the record in chronological order. chronological order.


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Kinds of Cash BookKinds of Cash Book Single Column Cash book: It records only Single Column Cash book: It records only

cash receipt and payments. It has only one cash receipt and payments. It has only one money column for each side. Cash Receipt are money column for each side. Cash Receipt are entered on Dr & Cash Payment on Cr side. entered on Dr & Cash Payment on Cr side.

Double Column Cash Book: It is consist of two Double Column Cash Book: It is consist of two separate columns on the debit and credit side separate columns on the debit and credit side to record cash and discount.to record cash and discount.

Three column Cash Book: It has three Three column Cash Book: It has three columns on each side. One for cash, second columns on each side. One for cash, second for discount and third for Bank account for discount and third for Bank account status. This type of cash book is very helpful status. This type of cash book is very helpful since it reveals the cash and bank deposits at since it reveals the cash and bank deposits at a glance. a glance.


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Single Column Cash Single Column Cash BookBook

Date Particulars V.N. L.F. Amount Date Particulars V.N. L.F. Amount

2007Feb 01“ 02“ 03

Mar 01

To Balance b/d To Khalid To Sales a/c

To Balance b/d

$ 15000 3000 5000

2007Feb 02“ 04“ 09“ 23“ 28

By purchase a/cBy Shahid By Salaries a/cBy Furniture a/cBy Balance c/d

$20001000900030008000

23,000 23,000

8000

Dr.

Cr.


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Double Column Cash Double Column Cash BookBook

Date Particulars V.N. L.F. Discount Amount Date Particulars V.N. L.F. Discount Amount

2007Feb 01“ 02“ 03

Mar 01

To Balance b/d To Khalid To Sales a/c

To Balance b/d

200200

400400

$ 15000 3000 5000

2007Feb 02“ 04“ 09“ 23“ 28

By purchase a/cBy Shahid By Salaries a/cBy Furniture a/cBy Balance c/d

300300

$20001000900030008000

600600 23,000 300300 23,000

80008000

Dr.

Cr.


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Three column Cash Three column Cash BookBook

Date Particulars V.N. L.F. Disct Cash Bank Date Particulars V.N. L.F. Disct Cash Bank

2007Feb 01“ 02“ 02“ 03“ 09

Mar 01

To Balance b/d To Khalid To CashTo Sales a/cTo Sales ac

To Balance b/d

200200

400400

$ 15000 3000

5000

$

3000300000

1000

25000

2007Feb 02“ 02“ 04“ 09“ 23“ 28“ 28

By purchase a/cBy CashBy Shahid By Salaries a/cBy Furniture a/cBy Office equipBy Balance c/d

300300

$20001000100090003000

7000

$

24000

32000

600600 23,000 5600560000

300300 23,000 5600560000

70007000 3200320000


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1.1. Under this system a fixed sum of Under this system a fixed sum of money is given to the petty money is given to the petty cashier to cover the petty cashier to cover the petty expenses (postage, telegrams, expenses (postage, telegrams, stationary, and office sundries) stationary, and office sundries) for the month. At the end of a for the month. At the end of a month the petty cashier submits month the petty cashier submits his statement of petty expenses to his statement of petty expenses to chief cashier for replenishment. chief cashier for replenishment.

The Imprest SystemThe Imprest System


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Petty Cash BookPetty Cash BookDate I No. Description US$ Travel Fuel Premises Security Mobile Miscellaneous

02.10.04 26Salary of four Armed guards, ANBP Compound for the month of September 2004.

$ 480 $ 480

02.10.04 27

DSA PAYMENT FOR Jalalabad RVC STAFF ON MISSION TO Jal- Nooristan

$ 100 $ 100

04.10.04 31

one sign board of WFP in front of ANBP compound for food items provided by WFP to ANBP

$ 46 $ 46

06.10.04 34

Daily wage of three armed guards of ANBP compound for 9 days of September 2004..

$ 108 $ 108

06.10.04 35Medical examination for joining DDR.

$ 9 $ 9

06.10.04 36One police uniform and Six pairs of military shoes for ANBP out side armed guards

$ 41 $ 41

06.10.04 37One Nokia mobile phone model (3410) for Radio room.

$ 72 $ 72

06.10.04 38DSA payment of Wafa from 20 to 23 of Sep, on mission to JAA- Kabul

$ 63 $ 63

07.10.04 41Two steel sheet size 3ft x 7ft and iron bolts for the guest house bunker gate

$ 53 $ 53

07.10.04 42

9276 liter Fuel Payment for (ANBP's, MoD's vehicles and generators for the month of September 2004 )

$ 4,189 $ 4,189

13.10.04 43one bag of cement for fixing the basement of ANBP security booth for armed guards.

$ 3 $ 3

19.10.04 44Mobile phone top up cards

$ 100 $ 100

31.10.04 45

2562 liters Fuel Payment for (ANBP's, MoD's vehicles and generators, till 13th of Oct, 2004)

$ 1,337 $ 1,337

TOTAL $6,600 $ 163 $ 5,526 $ 53 $ 632 $ 172 $ 54


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1.1. The Term final accounts means The Term final accounts means statement that shows the profit statement that shows the profit earned or loss suffered by the earned or loss suffered by the firm in an accounting period. firm in an accounting period. This statement is called income This statement is called income statement/trading and profit statement/trading and profit and loss account. and loss account.

2.2. This is also called statement of This is also called statement of operations. operations.

Final AccountsFinal Accounts


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Income Statement /Trading and profit and Loss statement For the year ended 31 Dec 2006

Income from sale: Sales ……………………….. Less: sales return …………. Sales Discount …….. Net Sales…………… Cost of Goods Sold: Merchandize beginning Inventory 01 Jan, 06 Purchases …………….. Less purchase return Net Purchases:……… Total Goods available for sales:…. Less Merchandize ending inv 31 Dec 06 Total cost of goods sold……………. Gross Profit: …………………………….. Operating Expenses: Selling expenses: Advertising expense…… Salesmen salaries ……… Warehouse supplies expenses Subtotal: General expenses: Office salaries ……… Taxes …………. Insurance expenses general ……… Subtotal: Total operating expenses: Net income from operations: Other Income Rent Income……….. Consultancy fee……….. Subtotal: Net Income Before Income Taxes (NBIT): Interest expense Net Income After Income taxes (NAIT):

$ 2000 3000 5000

40,000 2,000

200 1,000

______100

1,200 100

______600

2,000 ____1,600

$ 90,000

85000

75,000

38,000 113,000

50,000

1,300

1,900

3,600

500

$ 85000

$ 63,000

$ 22,000

$ 3,200

$18,800

$ 22,400

$ 21,900

Statement of Statement of OperationsOperations

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THE TRIAL BALANCE THE TRIAL BALANCE

The basis for financial statements The basis for financial statements is trial balance. is trial balance. A trial balance is a A trial balance is a two-column schedule listing the two-column schedule listing the names and balances of all the names and balances of all the accounts in the order in which they accounts in the order in which they appear in the ledger; the debit appear in the ledger; the debit balances are listed in the left-hand balances are listed in the left-hand column and the credit balances in column and the credit balances in the right-hand column. The totals of the right-hand column. The totals of the two columns should agree.the two columns should agree.


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THE TRIAL BALANCE THE TRIAL BALANCE

Cash ………………………………………Cash ……………………………………… $ 22,500$ 22,500

Accounts receivable ……..………………...Accounts receivable ……..………………... 9,500 9,500

Land ………………………………………Land ……………………………………… 130,000 130,000

Building …….……………………………..Building …….…………………………….. 36,000 36,000

Office equipment …….…………………....Office equipment …….………………….... 5,400 5,400

Accounts payable …….……………………Accounts payable …….…………………… $ $ 23,40023,400

James Robert, Capital ……………………….James Robert, Capital ………………………. 180,000 180,000

$203,400 $203,400$203,400 $203,400


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The Worksheet The Worksheet It is an analytical device that It is an analytical device that accumulates data for the adjusting and accumulates data for the adjusting and closing entries and working paper for closing entries and working paper for the accountant and for analyzing the the accountant and for analyzing the trial balance in order to prepare the trial balance in order to prepare the financial statements. It should be noted financial statements. It should be noted that worksheet is not a part of the that worksheet is not a part of the accounting records. It is a working paper accounting records. It is a working paper prepared by the accountant for his prepared by the accountant for his convenience. It makes the construction convenience. It makes the construction of financial statements easy, convenient of financial statements easy, convenient and accurate at the end of year. It is and accurate at the end of year. It is usually prepared in pencil. usually prepared in pencil.


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The WorksheetThe Worksheet ISLAND HOPPER Worksheet

For the month ended June 30 2001 Trail Balance Adjustment Adjusted trail

balance Income statement Balance sheet

Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Balance sheet accounts

Cash 23600 23600 23600 Account receivable 7200 a) 4600 11800 11800 Prepaid rent 9600 f) 4800 4800 4800 Unexpired insurance 21000 g) 2100 18900 18900 Aircraft 1200000 1200000 1200000 Accumulated depreciation air craft

380000 a) 10000 390000 390000

Notes payable 600000 600000 600000 Unearned passenger revenue 60000 b) 38650 21350 21350 Mary Earhart , capital 230850 230850 230850 Mary Earhart , drawing 7000 7000 7000 Salaries payable c) 3300 3300 3300 Interest payable d) 5000 5000 5000

Income statement accounts

Freight revenue 130950 e) 4600 135550 135550 Fuel expense 53800 53800 53800 Salaries expense 66700 c) 3300 70000 70000 Maintenance expense 12900 12900 12900

1401800 1401800 Depreciation expense aircraft

a)10000 100000 10000

Passenger revenue b) 38650 38650 38650 Interest expense d) 5000 5000 5000 Rent expense f) 4800 4800 4800 Insurance expense g) 2100 2100 2100

68450 68450 1424700 1424700 158600 174200 1266100 1250500 Net income 15600 15600

Totals 174200 174200 1266100 1266100

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1.1. Recording business transactions.Recording business transactions.

2.2. Posting debits and credits to a Posting debits and credits to a general ledger.general ledger.

3.3. Preparing a Trail Balance.Preparing a Trail Balance.

4.4. Making adjustments to the Making adjustments to the general ledger.general ledger.

5.5. Closing the books.Closing the books.

6.6. Preparing financial statements.Preparing financial statements.

The Accounting CycleThe Accounting Cycle


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(1)(1)

1.1. Recording business Recording business transactions.transactions. Businesses Businesses keep a daily record of keep a daily record of transactions in sales transactions in sales journals, cash-receipt journals, cash-receipt journals or cash-journals or cash-disbursement journals. disbursement journals.


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(2)(2)

2.2. Posting debits and credits to a Posting debits and credits to a general ledger.general ledger. A general ledger A general ledger is a summary of all business is a summary of all business journals. An up-to-date general journals. An up-to-date general ledger shows current information ledger shows current information about accounts payable, accounts about accounts payable, accounts receivable, owners' equity and receivable, owners' equity and other accounts. other accounts.


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(3)(3)

As explained earlier, before using As explained earlier, before using the account balances to prepare a the account balances to prepare a balance sheet, it is desirable to balance sheet, it is desirable to prove that the total of accounts with prove that the total of accounts with debit balances is equal to the total debit balances is equal to the total accounts with credit balances. This accounts with credit balances. This proof of the equality of debit and proof of the equality of debit and credit balances is called a trial credit balances is called a trial balance. balance.


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(4)(4)

3. 3. Making adjustments to the Making adjustments to the general ledger.general ledger. General-ledger General-ledger adjustments let businesses account adjustments let businesses account for items that don't get recorded in for items that don't get recorded in daily journals, such as bad debts, daily journals, such as bad debts, and accrued interest or taxes. By and accrued interest or taxes. By adjusting entries, businesses can adjusting entries, businesses can match revenues with expenses match revenues with expenses within each accounting period. within each accounting period.


08/04/23 70

Types of adjusting Types of adjusting entriesentries

1.1. Entries to apportion recorded cost: A cash Entries to apportion recorded cost: A cash expenditure that will benefit more than one expenditure that will benefit more than one accounting period. Dr. Relevant Exp account & Cr. accounting period. Dr. Relevant Exp account & Cr. Relevant Asset Account. Relevant Asset Account.

2.2. Entries to apportion unearned revenue: A business Entries to apportion unearned revenue: A business may receive cash in advance for services to be may receive cash in advance for services to be rendered in future accounting period. Dr. unearned rendered in future accounting period. Dr. unearned revenue & Cr. Revenue earned. revenue & Cr. Revenue earned.

3.3. Entries to record unrecorded expense: an expense Entries to record unrecorded expense: an expense may be incurred in the current accounting period may be incurred in the current accounting period even though no bill has been received and no cash even though no bill has been received and no cash payment will occur until next accounting period. Dr. payment will occur until next accounting period. Dr. Relevant Exp account & Cr. Rel Liability account. Relevant Exp account & Cr. Rel Liability account.

4.4. Entries to record unrecorded revenue: revenue may Entries to record unrecorded revenue: revenue may be earned in the current period. But not collected in be earned in the current period. But not collected in the period. Dr. Account Receivable & Cr. Revenue the period. Dr. Account Receivable & Cr. Revenue Earned. Earned. www.imstudies.vze.

com

08/04/23 71

(5)(5)

4.4. Closing the books.Closing the books. After all After all revenues and expenses are revenues and expenses are accounted for, any net profit accounted for, any net profit gets posted in the owners' gets posted in the owners' equity account. Revenue and equity account. Revenue and expense accounts are always expense accounts are always brought to a zero balance before brought to a zero balance before a new accounting cycle begins.a new accounting cycle begins.


08/04/23 72

(6)(6)

5.5. Preparing financial Preparing financial statements.statements. At the end of a At the end of a period, businesses prepare period, businesses prepare financial reports — income financial reports — income statements, statements of capital, statements, statements of capital, balance sheets, cash-flow balance sheets, cash-flow statements and other reports — statements and other reports — that summarize all of the financial that summarize all of the financial activity for that period. activity for that period.


08/04/23 73

Financial statementsFinancial statements The basic purpose of financial statements is to assist The basic purpose of financial statements is to assist

users in evaluating the users in evaluating the financial position, profitability, financial position, profitability, and future prospectsand future prospects of a business. of a business.

In deciding where to invest their resources, investors In deciding where to invest their resources, investors and creditors often compare the financial statements of and creditors often compare the financial statements of many different companies. For such comparisons to be many different companies. For such comparisons to be valid the financial statements of these different valid the financial statements of these different companies must be reasonably comparable – that is they companies must be reasonably comparable – that is they must present similar information in a similar format. To must present similar information in a similar format. To achieve this goal financial statements are prepared in achieve this goal financial statements are prepared in conformity with a set of “ground rules” called conformity with a set of “ground rules” called generally generally accepted accounting principles (GAAP).accepted accounting principles (GAAP).


08/04/23 74

Balance SheetBalance Sheet A A balance sheet, balance sheet, showing at a showing at a

specific date the specific date the financial financial position position of the company by of the company by indicating the resources that indicating the resources that it owns, the debts that it it owns, the debts that it owes and the amount of the owes and the amount of the owner’s equity (investment) owner’s equity (investment) in the businessin the business


08/04/23 75

Balance SheetBalance Sheet

Asset Liabilities & Owner's EquityCash 3,940$ Liabilities:Notes receivable 2,200$ Notes Payable 73,500$ accounts Receivale 2,450$ Accounts payable 32,700$ Land 39,000$ Total Liabilities 106,200$ Building 54,320$ Owner's EquityOffice Furniture 12,825$ William Pippin.capital 8,535$ Total 114,735$ Total 114,735$

Holly Wood ScriptsBalance Sheets

30-Nov-01


08/04/23 76

Income statementIncome statement•An income statement, indicating the profitability of the business over a financial period. •Net income is an increase in owner’s equity resulting from the profitable operation of the business. The opposite of net income, is the decrease in owner’s equity resulting from unprofitable operation of the business, and is called net loss.www.imstudies.vze.

com

08/04/23 77

ISLAND HOPPER

Income statement

For the month ended June 30 2001

Revenue:

Flight revenue $135,550

Passenger revenue $38,650

Total revenue $174,200

Expenses:

Fuel expense $53,800

Salaries $70,000

Maintenance expenses $12,900

Depreciation expense $10,000

Interest expense $5,000

Rent expense $4,800

Insurance expense $2,100

Total expense $158,600

Net income $15,600 www.imstudies.vze.

com

08/04/23 78

Statement of Owner’s Statement of Owner’s EquityEquity

1.1. A A statement of owner’s equity statement of owner’s equity explaining certain changes in explaining certain changes in

the amount of the owner’s the amount of the owner’s equity (investment) in the equity (investment) in the

business. (In businesses which business. (In businesses which are organized as corporations, are organized as corporations,

the statement of owner’s equity the statement of owner’s equity is replaced by statementsis replaced by statements of of

retained earnings.retained earnings.))www.imstudies.vze.

com

08/04/23 79

ISLAND HOPPER

Statement of owner’s equity

For the month ended June 30 2001

Mary Earhart , capital , June 1, 2000 $ 230850

Add: net income $ 15600

Subtotal $ 246450

Less: withdrawals $ 7000

Mary Earhart , capital , June 30, 2001 $ 239450


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Cash Flow Cash Flow StatementStatement

A A statement of cash statement of cash flows, flows, summarizing the summarizing the cash receipts and cash cash receipts and cash payments of the business payments of the business over the same time period over the same time period covered by the income covered by the income statement statement


08/04/23 81

TONY’S RENTALStatement Of The Cash Flows

For the month Ended September 30, 20__

Net cash flow from operating activities Net Income Non-cash expenses, revenues, gains, and losses included in income: Depreciation Deferred taxes Increase in accounts receivable Increase in inventories Increase in accounts payable Increase in taxes payable Gain on sale of equipment Net cash flow from operating activitiesCash flows from investing activities: Acquisition of plant and equipment Proceeds from disposals of plant and equipment Purchase of investment securities Proceeds from sales of investment securities Net cash used by investing activitiesCash flows from financing activities Proceeds of short-term debt Payments to settle short-term debt Proceeds of long-term debt Payments on long-term debt Proceeds from issuing common stock Dividends paid Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Amount2001205(87)(47)561(20)

228

(500)20(25)75

(430)

15(36)375(40)44(60)29896230326

08/04/23 82

Exercise & Exercise & Problems Problems

1.1. General JournalGeneral Journal2.2. General LedgerGeneral Ledger3.3. Trial BalanceTrial Balance4.4. WorksheetWorksheet5.5. Balance SheetBalance Sheet6.6. Income statementIncome statement7.7. Statement of owners Equity Statement of owners Equity 8.8. Statement of cash flow Statement of cash flow


08/04/23 83

More Information Please Refer More Information Please Refer Books: Books: M.A. Ghani, Principles of AccountingM.A. Ghani, Principles of Accounting James C.Van Horne & John M. James C.Van Horne & John M.

Wachowicz.JR, Fundamentals of Wachowicz.JR, Fundamentals of Financial Management. Financial Management.

Websites:Websites: www.businesstown.comwww.businesstown.com www.onlinewbc.gov/docs/finance/www.onlinewbc.gov/docs/finance/

index.htmlindex.html www.imstudies.vze.comwww.imstudies.vze.com


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