Professional Documents
Culture Documents
Accounting
Accounting is a language of business which systematically records daily events, leading to presentation of complete financial picture. It is an art of recording, classifying and summarizing financial transactions & events.
Classification of Accounts
Assets
Expenses
Liability
Capital
Income
Assets
An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Expenses
Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
Liability
A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
Capital
It is the Investment of the owners towards the business of the enterprises as well as all the retained earnings of the previous and corresponding year.
Income
Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Consistency:
The presentation and classification of items in the financial statements should be retained from one period to the next period.
11
Materiality:
Each material item should be presented separately in the financial statements. Immaterial amounts should be aggregated with amounts of a similar nature or function and need not be presented separately.
12
Accounting Equation
Assets + Expenses = Liabilities + Capital + Income
13
Accounting Equation
Assets
Expenses
Liability
Capital
Income
Dr. Side
Cr. Side
14
15
Debits
Increase Assets
Decrease Liabilities
KFA Research & Training Center 18
Assets
Increase Debit Decrease Credit
Normal Balance
19
Liabilities
Decrease Debit Increase Credit
Normal Balance
20
21
Expenses
Increase Debit Decrease Credit
NORMAL BALANCE
22
Decrease Debit
Revenues
Increase Credit
NORMAL BALANCE
23
Normal Balance
Assets Liabilities Capital Income Expenses = = = = = Debit Credit Credit Credit Debit
24
Accounting Concepts
The accounting profession has worked in recent years to develop a conceptual framework for accounting. The purpose of the framework is to act as a foundation for specific principles and standards needed by the profession. An important part of the conceptual framework is a set of assumption we make in preparing financial statements
25
Accounting concept
Business Entity Concept Money measurement concept Cost concept Duality concept Accounting period concept Matching concept
26
Business consists of person and resources. Person representing the business is separate and distinct from the business enterprises. Accounting system deals with the economic activities of the business not of owner. Preparation of B/S of the business does not consider the personal assets and liability of the owner of the business.
27
Accounting data accumulated measured and communicated in terms of money. Money is medium of exchange and standard of economic value. The information which can not be expressed in monetary terms is not accumulated and reported in the financial statement. Only those events for which monetary value can be established are recorded in the accounting statement.
KFA Research & Training Center 28
Cost concept
An assets will be recorded at its cost-the price paid or to be paid to acquire it. Fair value of assets is not considered for the accounting purpose. Any subsequent change in the market value is not recorded in the accounts of the company. It fails to reflect the true worth of the assets.
KFA Research & Training Center 29
Duality concept
Entity creates value with the use of resources. Economic resources are called assets. Assets acquired from the fund provided by owners, and from outside parties. Assets = equities. Assets = owners equity + liabilities The duality concept states that each business transaction has two aspects affecting assets and equities.
30
Financial statements are prepared to reflect the financial position and performance. Users need periodical reporting. For reporting the entire life of firm is divided into small periods called accounting period. P/L account prepared for accounting period and B/S at the closing date of the accounting period
KFA Research & Training Center 31
Matching concept
To determine the net result of the firm expense should be matched with revenue. Revenue-inflow of the assets or outflows of the liabilities. Expenses-outflow of the assets or inflow of liability to produce revenue. Cost may be expense or assets. Cost should be recognized as expenses in the period when the revenue is realized.
KFA Research & Training Center 32
Credit
Credit
33
34
35
Credit Accounting
Hire Purchase Loan Hire Purchase Loan A/C Debit Party s Current A/C Credit Term Loan Term Loan A/C Debit Party s Current A/C Credit
36
Credit Accounting
Credit Against FDR Demand Loan (Against FDR) Debit Party s Current Account Credit Credit Against Share Demand Loan (Against Share) Debit Party s Current Account Credit
37
Credit Accounting
Staff Loan Staff Loan A/C Debit Staff Savings Account Credit
38
Thank You
Have a Nice Day
39