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  • What Is Accounting?: Tells Us If A Business Is Making A Profit or A Loss

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    Lai Kee Kong
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    Accounting provides key financial information about a business including whether it is making a profit or loss, its overall worth, money owed to and by the business. Bookkeeping refers to manually tracking this financial data in books, while accounting still uses this process but now often with computer systems. The accounting equation, Assets = Capital + Liabilities, balances the money supplied by the owner (capital) with everything owned (assets) and everything owed (liabilities). The example tracks the starting of a business by Mr. Black and financial transactions over time using the accounting equation and accounts to show changes in assets, liabilities and owner's equity.

    Original Description:

    accounting. spm, igcse, bookkeeping

    Original Title

    What is Accounting

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    Accounting provides key financial information about a business including whether it is making a profit or loss, its overall worth, money owed to and by the business. Bookkeeping refers to manually tracking this financial data in books, while accounting still uses this process but now often with computer systems. The accounting equation, Assets = Capital + Liabilities, balances the money supplied by the owner (capital) with everything owned (assets) and everything owed (liabilities). The example tracks the starting of a business by Mr. Black and financial transactions over time using the accounting equation and accounts to show changes in assets, liabilities and owner's equity.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
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    2 views13 pages

    What Is Accounting?: Tells Us If A Business Is Making A Profit or A Loss

    Uploaded by

    Lai Kee Kong
    Accounting provides key financial information about a business including whether it is making a profit or loss, its overall worth, money owed to and by the business. Bookkeeping refers to manually tracking this financial data in books, while accounting still uses this process but now often with computer systems. The accounting equation, Assets = Capital + Liabilities, balances the money supplied by the owner (capital) with everything owned (assets) and everything owed (liabilities). The example tracks the starting of a business by Mr. Black and financial transactions over time using the accounting equation and accounts to show changes in assets, liabilities and owner's equity.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 13

    What is Accounting?

    Tells us if a
    business is
    making a profit
    or a loss

    How much the


    business is
    worth

    How much money


    they are owed
    (Debtors)

    How much
    money they owe
    (Creditors)

    What is bookkeeping?
    In the old days there were no computers, so all the information
    about a business was kept in a book. Therefore accounting is
    sometimes referred to as book-keeping.

    The accounting equation


    Capital = Assets - Liabilities
    The amount of
    money supplied by
    the owner

    Every thing the


    business owns

    Everything the
    business owes

    The accounting equation

    t
    pi
    a
    C

    =
    al

    As

    ts
    e
    s

    s
    e
    i
    lit
    i
    ab
    i
    L

    As
    se
    ts

    Ca
    pi
    ta

    l+

    Li
    ab

    ili
    tie
    s

    Assets consist of property of all kinds, such as


    buildings, machinery, equipment, stock. Other assets
    include debts people owe to the business.

    Liabilities include amounts owed by the business for


    goods and services that have not yet been paid.

    Mr Black started a business and deposited 60,000 into a bank account

    Assets
    Cash at bank

    60,000

    Capital

    60,000

    Mr Black buys a small shop for 32,000, paying by cheque.

    Assets
    Cash at bank
    Shop
    Capital

    28,000
    32,000

    60,000
    60,000

    Mr Black buys some stock for 7,000 and agrees to pay the supplier in
    two weeks. Mr Black is called a creditor

    Assets
    Cash at bank
    Shop
    Inventory

    Account payable

    Capital

    28,000
    32,000
    7,000
    67,000
    (7,000)

    60,000
    60,000

    Mr Black sells some inventory for 600, but Mr Black will collect the
    money later. This is known as a debtor

    Assets
    Cash at bank
    Shop
    Inventory
    Account receivable

    28,000
    32,000
    6,400
    600

    Account payable

    (7,000)

    Capital

    60,000
    60,000

    Mr Black sells some inventory for 400, and receives the payment
    instantly.

    Assets
    Cash at bank
    Shop
    Inventory
    Account receivable

    28,400
    32,000
    6,000
    600

    Account payable

    (7,000)

    Capital

    60,000
    60,000

    Mr Black pays a cheque for 3,000 for the inventory he bought the
    other week.

    Assets
    Cash at bank
    Shop
    Inventory
    Account receivable

    25,400
    32,000
    6,000
    600

    Account payable

    (4,000)

    Capital

    60,000
    60,000

    Mr Black receives payment of 200.

    Assets
    Cash at bank
    Shop
    Inventory
    Account receivable

    25,600
    32,000
    6,000
    400

    Account payable

    (4,000)

    Capital

    60,000
    60,000

    Work Sheet

    Use white boards to help

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