Accounting.pptx

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.