This action might not be possible to undo. Are you sure you want to continue?
“Book keeping which tells us how to keep a record of Business transaction”. It is important to note that only those transactions related to business which can be expressed in terms of money are recorded. Advantages:
2. 3. 4.
Identifying Do’s and Don'ts. Accuracy of accounts. Recording day-to-day transaction.
Accounting, as an information system, is the process of identifying, measuring, and communicating the economic information of an organization to its users who need the information for decision making. Definition:
Cash and Accrual Accounting Refers to the timing of entries in to the accounting system Transactions are recorded when cash is received or paid out .
Accounting Bookkeeping .
Branches of Accounting .
. Management Accounting It relates to the use of accounting data collected with the help of financial accounting and cost accounting for the purpose of policy formulation. control and decision making by the management. classification and ascertainment of the cost of production or job undertaken by the firm.Financial Accounting :It is concerned with recording of business transactions in the books of accounts in such a way that operating result of a particular period and financial position on a particular date can be known. planning. Cost Accounting It relates to collection.
Accounting Flow Chart Original evidence records Accounting Cycle Financial Statements Source documents Journals Profit and Loss Ledger Trial Balance Closing Entries Statement Balance Sheet Statement of cash flows .
Source documents to support transactions .
Examples are sales slips or invoices. purchase orders.Accounting Cycle The process starts with source documents. and cash receipt slips. which are the supporting original records of any transaction. check stubs. receiving reports. .
Account Rules .
1 2 3 4 Identify transaction from source documents.Journal and Journal entry Journal It is a list in chronological order of all the transactions for a business. usually accompanied by an explanation of the transaction This analysis identifies the accounts to be debited and credited. Apply debit/credit rules. Specify accounts affected.an analysis of the effects of a transaction on the accounts. . Record transaction with description Journal entry Journal entry .
with debits and credits in separate columns and a beginning balance and ending balance for each account. The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. . These records remain as a permanent track of the history of all financial transactions since day one of the life of your company Company's financial statements are generated from summary totals in the ledgers. Every transaction flows from a journal to one or more ledgers.Ledger A ledger is the principal of book of recording business transaction and totaling monetary transactions by account.
Cash account . Accounts Payable ledger and other. Ex: Inventories account. We can find two types of ledger. General Ledger is a list of accounts showing changes in them during the accounting period and final balances in the accounts at the end of that particular period. Subsidiary ledger containing individual accounts with a common features and characteristics. General ledgers that contains all of the balance sheet and income statement accounts. sales revenue account .Expenses account.Ledger types In the accounting we call ledger a group of accounts used by the business for the accounting purposes. Ex:Can be Accounts Receivable ledger. .
. Sales ledger( accounts receivable): This ledger consists of the financial transactions made by customers to the company. Purchase ledger (accounts payables):records money spent for purchasing by the company.….Cont. .
. For instance. The general ledger can be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. description and balance or total amount for each account. The balance sheet and the income statement are both derived from the general ledger. an accounts receivable subsidiary ledger would contain a separate account for each credit customer. tracking that customer's balance separately.General ledger “Central repository of the accounting information of an organization in which the summaries of all financial transactions (picked from subsidiary ledgers) during an accounting period are recorded. it provides the entire data for preparing financial statements for the organization”. Also called the book of final entry. The general ledger should include the date.
Therefore. It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered. This amount is called trade receivables or accounts receivables. Trade receivables is shown as a current asset in the balance sheet. A credit customer is also called a debtor. The balance of a customer’s account shows the amount that the customer owes the business. the total of balances in the sales ledger is the total amount the business is owed by its credit customers. Accounts receivable also known as Debtors. Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit .Sales ledger The book (or set of books) in which the personal accounts of credit customers are kept.
.The amount of money received for goods or services. this is because a sales ledger normally records : .The sales a business has made. .The amount of money owed at the end of each month varies (debtors).Sales ledger The accounts receivable departments use the sales ledger. .
Sales Process .
The purchase ledger contains the individual accounts of suppliers from whom the business has made purchases on credit.Purchase ledger “A ledger that records goods and service that a business purchase on credit”. . and payments made. are recorded in the supplier's account using the debits and credits system. Information on invoices and credit notes received. with the balance of each account at a given moment representing the amount currently owed to that supplier. Trade payables is shown as a current liability in the balance sheet.
Procurement Process Purchase Requisition Purchase Order Notify Vendor Payment to Vendor Vendor Shipment Invoice Receipt Goods Receipt .
and the value of the goods . 4. From the point of view of a buyer.Invoice “An invoice or bill is a commercial document issued by a seller to the buyer. Time sheet: invoice for hourly service such as consultant Self invoice: A self billing invoice is when the buyer issues the invoice to himself Pro forma invoice Commercial invoice: a customs declaration form used in international trade that describes the parties involved in the shipping transaction. and agreed prices for products or services the seller has provided the buyer”. according to the payment terms. an invoice is a purchase invoice” Types of Invoice 1. quantities. the goods being transported. 2. indicating the products. The buyer has a maximum amount of days to pay for these goods and is sometimes offered a discount if paid before the due date “From the point of view of a seller. an invoice is a sales invoice. An invoice indicates the buyer must pay the seller. 3.
Four basic financial statements: Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings .
Equipment could consist of things like a barn or a tractor Liabilities and Equity: Companies normally obtain resources by incurring debt.Consists of Cash. Liabilities. and (Ownership/Stockholder's) Equity Remember the important basic accounting equation: Assets = Liabilities + Equity Asset: Assets are the economic resources of the company . Presents the financial position of a company at a given point in time Comprised of three parts: Assets. Inventory. Equipment Examples: For a farm. or through re-investing operating earnings Liabilities are the debts owed by the company Equity is comprised of the claims that investors have on the company's resources after all debts have been paid off “net worth” of the company . Inventory might be the farmer's crops. getting new investors.
. or profit and loss statement.Income statement The income statement reports the revenues and expenses for a specific period of time. A net loss occurs when expenses exceed revenues. followed by expenses. earnings statement. Net income results when revenues exceed expenses. The income statement is some times referred to as the statement of operations. The income statement lists revenues first. Finally the statement shows net income (or net loss).
uses.Statement of cash flow The statement of cash flow provides information on the cash receipts and payment for specific period of time. and others want to know what is happening to a company’s most liquid resource. creditors. The statement of cash flows reports (1) the cash effects of a company’s operations during a period. (3)its financing transactions. (2) its investing transactions. . and (5) the cash amount at the end of the period. and change in cash is useful because investors. Reporting the sources. (4) the net increase or decrease in cash during the period.
You can think of retained earnings as the amount of income that is left in the company. Retained earnings of a company refers to income that is not distributed to the stockholders. what is the purpose of the statement of retained earnings? The statement of retained earnings explains the changes in retained earnings from net income (or loss) and from any dividends over a period of time. It is prepared after the income statement and before the balance sheet. So. usually a year. .Statement of Retained Earnings The statement of retained earnings is the second financial statement prepared. This means that the statement of retained earnings reports the change in retained earnings from the beginning to end of a time period.
including sales tax Need assurance on security of their jobs. usage of local resources. environment. credit agencies) Use information to allocate resources. current and expected in the future Management Shareholders Use information to assess performance of the management Trade partners (suppliers. Customers buying goods need information on security and stability of their purchases Creditors Need an assurance that loans granted to the business and interest on the loans will be paid on time Taxation authorities Employees Financial analysts and advisors Government and its institutions Use information for assessment of taxes. Information is used to evaluate such contribution . employment.Users of accounting information Users of accounting data and financial statements Responsible for day to day business management. future career perspectives Use information to provide services to clients (investors. Need information on financial situation of business. for statistical purposes Public Businesses are members of public. i. customers) Suppliers selling goods need information on security of their sales and payments. They contribute to local economy.e.
Cash Transaction is one where cash receipt or payment is involved in the transaction. Account An account is an individual accounting record of increases and decreases in a specific casset.Basic accounting definitions Transactions Transactions are those activities of a business. Liabilities Creditor claims on total assets. liabilities. . Capital It is the amount invested by the proprietor/s in the business. Net loss The amount by which expenses exceed revenues. Proprietor A person who owns a business is called its proprietor. Bookkeeping A part of accounting that involves only the recording of economic events. Expenses The cost of assets consumed or services used in the process of earning revenue. which involve transfer of money or goods or services between two persons or two accounts. Balance sheet A financial statement that reports the assets. Net income The amount by which revenues exceed expenses. Credit Transaction is one where cash is not involved immediately but will be paid or received later. liability. or owner’s equity item Assets Resources a business owns. and owner’s equity at a specific date.
but liable to pay in future or in due course of time is a debtor. Total purchases include both cash and credit purchases. The creditors are shown as a liability in the balance sheet. it is called as credit purchases. is a creditor. . Purchases Purchases refers to the amount of goods bought by a business for resale or for use in the production. If it is purchased on credit. Goods purchased for cash are called cash purchases.Debtors A person (individual or firm) who receives a benefit without giving money or money’s worth immediately. Creditors A person who gives a benefit without receiving money or money’s worth immediately but to claim in future.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.