Business

Studies &
Accounting
LOGICAL ACCOUNTING WITH CHATHURA
What is Accounting
•The Accounting is the process of providing information required by the
interested parties of a business for their decision making
•Interested parties are the parties who have an interest on the actions and
decisions of a business.
Ex: Owners, Managers, Employees, Suppliers, Customers Etc.
Elements of Accounting
•Assets
•Expense
•Income
•Liability
•Equity
What is an Asset
An asset is a resource controlled by the business as a result of a past transaction and from which
future economic benefits are expected to flow to the business.
Ex: Building, Cash, Debtor, Machine etc.
Characteristics of an asset
•Arose as a result of a past transaction
•Controlled by the business
•Inflow of future economic benefit to the business
Categorization of Assets
Assets

Current Assets Non-Current Assets

The assets that are expected to be used, sold All the assets that cannot be considered as
or converted into cash within a short time current assets are considered as non-current
period as 12 months in the ordinary activities asset.
of a business are classified as current
assets. -Property Plant & Equipment
-Long term investments
Ex: Debtors, Cash, Inventory, -Intangible Assets
What is a Liability
Present obligation arose as a result of past transaction that results an outflow of economic
resources when settlement is made.
Ex: Creditor, Accrued Expenses, Bank Overdraft, Bank Loan
Characteristics of a liability
•Arose as a result of a past transaction
•Outflow of economic resources when settlement is made
•Having a current obligation
Categorization of Liabilities
Liabilities

Current Liability Non-Current Liability

The liabilities that should be settled within a short
period of time as within 12 months are classified as
current liabilities. There are also termed as short-
term liabilities.
Ex: Creditors, Accrued Expenses, Bank overdraft
All of the liabilities that cannot be considered
as current liabilities are classified as non-
current liabilities.
Ex: Bank Loan, Lease Creditor
Equity (Net Assets)
The value of assets that belongs to owners of the business is termed as
equity.

◦ Assets – Liability = Equity (Net Assets)

Income
Increase in equity by increase in assets or decreasing liability without the
contribution of the owner

◦ Assets – Liability = Equity (Net Assets).

Ex: Sales, Rent Income, Credit Sales, Discount Received, Interest Income
Expense
Decrease in equity by decrease in assets or increase in liability without the drawings of the owner

Assets – Liability = Equity (Net Assets).

Ex: Electricity Expense, Water Charges, Discount Allowed