Prepared by: Teacher Sheryl Mae Felias
TERMS:
A. Accounting – is the
process of using the
information collected by the
bookkeeper to calculate key
measures such as:
business’s profit or loss
what the business owns (assets)
what the business owes (liabilities)
TERMS:
B. Book-keeping –
is the recording of a
business’s financial
transactions.
these transactions are
placed in the books of
prime entry.
TERMS:
C. Assets – are items a
business owns or
amounts owed to
them by others.
TERMS:
C. Assets are categorised as:
C.1 Current Assets – to be used
within the business with the aim of
making profit
Ex: Cash
Inventory – raw materials (woods)
TERMS:
C. Assets are categorised as:
C.2 Non-Current Assets – large,
expensive items and which stay longer
in a business but also help to generate
profit
Ex: Machineries
Premises– house or building
TERMS:
D. Liabilities – are amounts owed by the
business to others.
D.1Current Liabilities – due and
payable within the financial year or one
year. (ex. bills payable, salaries payable)
D.2 Non-Current Liabilities – due and
payable after the end of current
financial year or over 12 months.
(ex. bank loan)
TERMS:
E. Owner’s Equity or Capital
- represents the amount of
money or assets such as
machinery or vehicles an
owner introduces into the
business.
- it is essentially what the
business owes to the owner
TERMS:
F. Loss – is when
total costs exceed
total revenue.
TERMS:
G. Profit – is when
total revenue exceeds
total costs.
Book-keeping VS Accounting
SCOPE
BOOK-KEEPING ACCOUNTING
concerned with concerned with
identifying summarizing
financial the recorded
transactions; transactions;
measuring them
interpreting
in money terms;
recording then in
them and
the books of communicating
accounts and the results to
classifying them. the users.
Book-keeping VS Accounting
STAGE
BOOK- ACCOUNTING
KEEPING itis
it is primary
secondary
stage. stage. It
begins where
book-keeping
ends.
Book-keeping VS Accounting
OBJECTIVE
BOOK-KEEPING ACCOUNTING
toascertain net
tomaintain
results of
systematic operations and
records of financial position
financial and to
communicate
transactions. information to the
interested parties.
Book-keeping VS Accounting
NATURE OF JOB
BOOK- ACCOUNTING
KEEPING analytical
routine in
and dynamic
nature in nature
Book-keeping VS Accounting
PERFORMANCE
BOOK- ACCOUNTING
KEEPING Senior Staff
Junior Staff
performs the
performs the function
function
Book-keeping VS Accounting
RELATION
BOOK- ACCOUNTING
KEEPING beginswhere
basis for
book-keeping
accounting ends
PURPOSES OF
MEASURING
BUSINESS
PROFIT AND
LOSS
PURPOSES OF MEASURING
BUSINESS PROFIT AND LOSS
• Income Statement – records
the income and expenses of the
business
1. Profit – income exceeds expenses
PURPOSES OF MEASURING
BUSINESS PROFIT AND LOSS
• Income Statement – records
the income and expenses of the
business
2. Loss – expenses exceeds income
INCOME STATEMENT
PURPOSES OF MEASURING
BUSINESS PROFIT AND LOSS
• Statement of Financial
Position or Balance Sheet
- contains the key profit or loss for
the year
- shows the assets and liabilities of
the business
- what the business owns and owes
- how it has been funded through the
owner’s equity
STATEMENT OF FINANCIAL
POSITION
ASSETS,
LIABILITIES AND
OWNER’S
EQUITY
Business Start-up
Money
Inventory of Goods
Owner’s Equity
Property
or Capital
Motor Vehicles
etc.
ASSETS
items which the business
owns or are owed to them.
Ex.
The business sells goods on credit
to a customer. (customer receives the
goods and pay later)
this customer is now a trade
receivable and owes money
for the goods they have
LIABILITIES
amounts which the
business owes.
Ex.
The business may have bank
overdraft, a bank loan or may have
bought goods on credit. (the business
receives the goods and pay later)
the business is now a trade
payable and owe money for
the goods received
ASSETS = LIABILITIES + OWNER’S EQUITY
ACCOUNTING
EQUATION:
ASSETS = LIABILITIES + OWNER’S EQUITY
ASSETS = OWNER’S EQUITY + LIABILITIES
LIABILITIES + OWNER’S EQUITY = ASSETS
OWNER’S EQUITY + LIABILITIES = ASSETS
ASSETS = LIABILITIES + CAPITAL
ASSETS = CAPITAL + LIABILITIES
ACCOUNTING
EQUATION:
ASSETS = ? + OWNER’S EQUITY
Formula:
ASSETS – OWNER’S EQUITY = LIABILITIES
Ex:
$45,000 = ___________ + $30,550
Answer:
$45,000 = 14,450 + $30,550
ACCOUNTING
EQUATION:
ASSETS = LIABILITIES + ?
Formula:
ASSETS – LIABILITIES = OWNER’S EQUITY
Ex:
$76,000 = $30,550 + ___________
Answer:
$76,000 = $30,550 + $45,450
ACCOUNTING
EQUATION:
? = LIABILITIES + OWNER’S EQUITY
Formula:
LIABILITIES + OWNER’S EQUITY = ASSET
Ex:
$25,000 + $90,550 = ____________
Answer:
$25,000 + $90,550 = $115,550
Examples:
Assets = Liabilities + Capital
$ $ $
5,000 2,000 ?
? 10,000 15,500
25,000 ? 19,000
76,000 35,400 ?
190,000 ? 145,000
Examples:
Assets = Liabilities + Capital
$ $ $
5,000 2,000 3,000
25,500 10,000 15,500
25,000 6,000 19,000
76,000 35,400 40,600
190,000 45,000 145,000
THE
STATEMENT
OF
FINANCIAL
POSITION
THE STATEMENT OF
FINANCIAL POSITION
“Balance Sheet”
isa statement of the
assets and liabilities of
a business on a certain
date
ACCOUNTING PERIOD
isan economic term that refers to
the period for which an entity
prepares its financial statements.
itis a continuous period of twelve
consecutive months, unless stated
otherwise.
individual accounting periods
must be consecutive, i.e. follow
one after another.
ACCOUNTING PERIOD
TWO KINDS:
1.Calendar Year
2.Fiscal Year
1. Calendar Year
the accounting period begins on
January 1 and ends on December
31 of the same year
1. Calendar Year
1. Calendar Year
2. Fiscal Year
the accounting period begins on
the first day of any month other
than January
2. Fiscal Year
2. Fiscal Year
Prepare the following table to show the
effect of each of the following transactions.
a) Bought equipment and paid by cash
b) Received a loan into the bank account
c) Bought property using a loan
d) Sold goods for cash
Account Title Effect on Effect on
Assets Liabilities
$ $
A Equipment Increase
Cash Decrease
B Bank Increase
Bank Loan Increase
C Property Increase
Bank Loan Decrease
D Cash Increase
Inventory Decrease
A simplified statement of financial position of
Meera Traders on 31 May 20-9 is shown below.
Meera Traders
Statement of Financial Position at 31 May 20-9
$
Assets
Property
Equipment 160,000
Inventory
Trade Receivables 12,500
Bank
Cash 3,300
2,800
6,200
450
$185,250
Capital and
Liabilities
On 1 June 20-9 the following
transactions took place:
Paid a credit supplier $90 in
cash.
Received a cheque from a credit
customer for $125.
Bought goods on credit for
$140.
Prepare the financial statement of financial
position of Meera Traders on 1 June 20-9 after
the above transactions have taken place.
T
ACCOUNTS
T ACCOUNTS
is a visual representation
of individual accounts that
looks like a “T”, making it
so that all additions and
subtractions (debits and
credits) to the account can
be easily tracked and
represented visually.
Debits and Credits for T
Accounts
Debits and Credits
◦ are simply accounting jargon that
can be traced back hundreds of
years and that is still used in today’s
double-entry accounting system.
