Accounting Principles and Procedures

Mandatory Competency at Level 1

Ramesh Palikila MRICS QS , Davis Langdon

Indian Quantity Surveyors Association IQSA-APC-Matrix

www.iqsa.info

Agenda

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The balance sheet

The balance sheet reports the amount of assets, liabilities, and stockholders' (or owner's) equity at a specific moment (or point in time).
The balance sheet usually reports assets by classifications such as Current assets Investments, Property, plant and equipment, and other assets. Liabilities :Current liabilities and long-term liabilities. Typical assets listed on the balance sheet : Cash, accounts receivable, inventory, supplies, prepaid insurance, land, buildings, equipment, and intangible assets such as goodwill. Typical liabilities include : Accounts payable, wages payable, interest payable, income taxes payable, and bonds payable. Stockholders' equity: Assets - Liabilities.
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Other points
Profit & Loss Account P & L account is a financial statement which the net results of the business for a particular period. It includes income and expenses of that period. Taxation Taxation is a levy charged by government on individuals. Normally tax is divided into two types, Direct Taxes such as income tax and indirect tax such as sales tax, employment tax etc. It is the revenue for the government for various expenditure of the nation. Revenue Expenditure Revenue Expenditure is the amount spend for daily or routine business activity such as salary, insurance, rent, advertisement. These expenditure is to matched with the revenue to arrive at the profit or loss for the period.

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The accounting equation

Assets = Liabilities + Owner's (Stockholders') Equity.

The accounting equation should remain in balance at all times because of double-entry accounting or bookkeeping. (Double-entry means that every transaction will affect at least two accounts in the general ledger.) Assets = Liabilities + Owner's Equity + Revenues Expenses Draws

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The cash flow statement

The cash flow statement (or statement of cash flows) is one of the main financial statements. The cash flow statement explains how a company's cash and cash equivalents have changed during a specified period of time. The cash flow statement is organized into three sections: 1. Cash provided and used in operating activities, 2. Cash provided and used in investing activities, 3. Cash provided and used in financing activities.

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Debits and credits

Debits and credits are part of double entry accounting and bookkeeping. Recording a transaction under double entry requires that at least one account will have an amount entered as a debit-which means entered on the left side of an account. It also requires that at least one account will have an amount entered as a credit-which means entered on the right side of an account. Each transaction must have the total of the debits equal to the total of the credits.

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Financial accounting
Financial accounting is focused on four general-purpose, external financial statements: The balance sheetwhich reports a corporation's assets, liabilities, and stockholders' equity as of a point in time (e.g., as of midnight of December 31, 2006). The income statementwhich reports a corporation's revenues and expenses for a period of time, such as a year, quarter, month, 52 weeks, etc. The statement of cash flows (or cash flow statement)which provides information on the change in a corporation's cash and cash equivalents during the same period of time as the income statement. statement of stockholders' equity

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Capital Expenditure
Capital expenditure is an outlay of cash either acquire long term assets such as Plant, Machinary, Furniture. Vehicles, Land etc or improve an existing the aforesaid assets.

Auditing
Auditing refers to an official examination of an organizations accounts to ensure that money is spend correctly. The different types of audit includes Financial audit, Tax audit, Cost audit, Management Audit etc.

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Ratio Analysis
Ratio simply means one number expressed in terms of another. Ratio analysis is a tool which is used to analysis of the performance of a company by using published accounts such as income statement, balance sheet, cash flow statement. Normally ratio analysis can be classified into the following groups. Profitability Ratio: It is a ratio which measures the profitability of an organization. It indicate how well a firm is performing in terms of its ability to generate revenue. Eg: Net Profit Ratio= Net profit/ Sales Coverage Ratio: A measure the corporations ability to cover an expense. Eg: Fixed Interest Cover = Income Before Interest & Tax/ Interest Charges Turnover Ratio: It is activity or efficiency ratio. It indicates the efficiency with which the capital employed is rotated in the business. It measures an assets activity or efficiency in generating or turn over cash. Eg: Assets Turn Over = Net Sales/ Net Assets Financial Ratio: It indicates about the financial position of the company. It is further divided into Liquidity Ratio and Stability Ratio. Liquidity ratio (measures short term solvency of the firm) Current Ratio= Current Assets/ Current Liabilities Stability Ratio (Measures long term solvency of the firm) Fixed Assets Ratio = Fixed Assets/ Long term Funds

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Credit Control , Profitability ,Insolvency

Credit control is the process of controlling the credit extended to credit customers in the daily business. It takes into account increase in sales revenue by extending sales customers on credit basis who is having reliable credibility and minimizing bad debt loses (Uncollected credit sales amount). Profitability: Profitability is the ability of a firm to generate/ earn profit. The ability to earn income over its expenditure. Insolvency: Solvency is the ability of the firm to pay its debt in time. Insolvency is the inability to pay the debt.

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