30/11/22

Basic Accounting

Economic activity for earning profit – business

Earning – expenses = profit

Types of business activities – Sales of goods or services

Sales of goods – trading (buying & selling) / manufacturing (produce & Sell)

Business expenses & earning for gaining profit

Types of business org. – sole proprietorship / Partnership /company

Business owner – to whom business risk & rewards belongs

Financial accounting – language to record financial information (financial means related to money)
for financial performance reporting for a specific period, and for recording financial information we
use some words called accounts

Separate entity concept – Business and owner are separate entities

Groups of accounts – income, expense, asset (benefit more than 1 year), liability, equity

Assets – owned/purchased/manufactured resources of business from which it can get benefits in

future - Property (Land, building), Furniture, plant, machinery, equipment, investments, trade
receivables/ debtors / Accounts Receivables, Bank, Cash, ---------- Receivable, Vehicles, inventory /
stock, Advance to supplier, Prepayments, computers

Liabilities – obligation to pay - Loan, ------ Payable, creditors / trade payables/ accounts payables,
bank overdraft, advance from customer, unearned income, accrued expenses

Equity – owners right on business - capital, drawings, dividend, accumulated profits

Incomes – sales, sales returns, rent income, interest income, other income

Expenses – purchases, purchase returns, salaries, repair & maintenance, rent, interest, stationery,
utilities, depreciation, Bad debts, bank charges / finance charges, carriage

Accounting equation

Assets = Equity + Liabilities

Owner started business
200,000

Cash +200,000 Capital +200,000

Furniture purchased 50,000

Cash -50,000 furniture +50,000

Obtained loan 100,000

Bank +100,000 Loan +100,000

Asset, Expenses - Increase Dr, decrease Cr

Liabilities, equity & Income – decrease Dr, Increase Cr.

Every transaction has at least two effects on accounting equation