Accounting

Wednesday, September 22, 2021 10:23 PM

What is Accounting?

The process of
Identifying- Separating out Accounting Transactions from Non-Accounting Transactions
Measuring-
Communicating- written communication
Economic information to the users of financial statements so that they can take informed
decisions on the basis of information shown in the FS.

Users of Financial Statements:

Shareholders/Owners
Creditors
Employees
Managers
Tax Inspectors

Assets Accrual Basis

Financial statements: Cash Basis
It a set of 4 Statements Liability
1-Balance Sheet/Statement of Financial Statements
2-Income Statement Incomes/Revenue/Sales & Expenses Accrual Basis
3-Cashflow Statement Equity Revenue $1,000
4-Statement of changes in equity Expenses $500
5-Notes to financial Statements Profit $500

Elements of Financial Statements:

1-Assets Dr. Cr. Cash Basis
Electricity
2-Liability Cr. Dr. Revenue $0
Insurance
3-Capital Cr. Dr. Expenses $500
Telephone
4-Income Cr. Dr. Loss $500
Running and maintenance
5-Expenses Dr. Rent
Stationary
Capital + profit= Equity
$1,000 + $500=$1,500
Building Dr. $1,000
Cash Cr. $500 Capital - Loss= Equity
Payable Cr. $500 $1,000 - $500=$500

Capital Adjusted for Profit/Loss

Every transaction will have a Dual Effect:
Dr Cr
Cr Dr
Dr=Cr

Assets:

An asset is a resource with economic value that a corporation owns or controls

with the expectation that it will provide a future benefit (cash). Assets are
reported on a company's balance sheet and are bought or created to
increase a firm's value or benefit the firm's operations.

Non-Current Asset (<12 months)

Current Assets (12 months)
Machinery
Inventory (Raw material, Work in progress, Finished Goods)
Fixtures and furniture
Accounts Receivables
Vehicles
Bank
Buildings
Cash
Land

Quick Notes Page 1

Inventory (Raw material, Work in progress, Finished Goods)
Fixtures and furniture
Accounts Receivables
Vehicles
Bank
Buildings
Cash
Land
Equipment

Liability: Cr Credit period is of 3 months usually.

Amounts that we owe to others. A/P - Purchases on credit
A/R - Sales on credit

Current Liability (with 12 months) Non-Current Liability (<12 months)

Accounts Payable Long term loans
Bills payable Bonds payable
Tax payable Mortgage payable
Interest payable
Short-term loan

Capital:
The money invested in a business to start a business.
$1000- capital ------feb 2015
$1000- Profit -------feb 2016
Equity= Capital + Profit= $2000 feb 2016

Why Assets/ Expenses are always credit:

Assets Dr. Expenses Dr.
A/P Cr. Cash Cr.

Quick Notes Page 2