What

What is
is Accounting?
Accounting?
The purpose of accounting is to:
(1) identify,
identify record,
record and communicate the economic
events of an

(2) organization to

(3) interested users.

 Who
Who Uses
Uses Accounting
Accounting Data
Data
Internal Users
Management Banks
Owners Investors

There are two broad

groups of users of Researchers
Employees accounting information:
internal users and
external users. Creditors
Workers
Public
Customers External
Users
 Users of Accounting
Information
External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers/Directors •Budget Officers

•Governments •Customers •Internal Auditors •Controllers

 Importance of Accounting
is a
Accounting
Accounting Identifies
Identifies
system that

Records
Records

information
Relevant
Relevant Communicates
Communicates
that is

Reliable
Reliable
to
tohelp
help users
usersmake
make
Comparable
Comparable better
betterdecisions.
decisions.
 Accounting Activities
 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities
 Accounting Equation
Assets
Assets = Liabilities
Liabilities + Capital
Capital

Liabilities
Assets & Capital
 Equation
The accounting equation MUST remain in
balance after each transaction.

Assets
Assets = Liabilities
Liabilities + Capital
Capital
 Assets
• Assets are property owned by an
individual or business to which
money value can be attached.
 Assets
Cash
Cash
Prepaid
Prepaid
Machinary
Machinary Expenses
Expenses
Resources
Resources
owned
owned oror
Vehicles controlled
controlled
Vehicles Land
by
by aa Land
company
company
Buildings
Buildings
Debtors
Debtors
Furniture
Furniture
 Liabilities
• Liabilities mean the amount owed by
the business to outsiders and to the
proprietors.
 Liabilities

Accounts
Accounts Outstanding
Outstanding
Payable
Payable Expenses
Expenses

Creditors’
Creditors’
claims
claims on
on
assets
assets
Taxes
Taxes Creditors
Creditors
Payable
Payable
 Capital
Capital is the amount invested by the
proprietor or partner in the business.
Contributed
Contributed Retained
Retained
Capital
Capital Earnings
Earnings

Capital
Capital

Dividends
Dividends
Basic Facts About
Accounts
 Accounting Equation
• Assets = Liabilities + Capital
• Every accounting transaction has an equal affect
on both sides of the equation.
• Purchase a Rs.20,000 car for cash.
– Increase asset car and decrease asset cash
by Rs.20,000. No net change to assets.
• Purchase a Rs.20,000 car on credit.
– Increase asset car and increase liabilities by
Rs.20,000.
Account Title

D
e
Date Particulars Assets = b Liabilities + Capital
 Analyzing Transactions

1. Analyze the transaction and its

source.
2. Identify the impact of the
transaction on account balances.
3. Identify the financial statements
that are impacted by the
transaction.
 Let’s . . .

. . . At Debits
 Debits

• Debit comes from Latin and merely

means “left,” or the “left-hand” side
of an account. Abbreviated “DR.”
 Let’s . . .

. . . At Credits
 Credits
• Credit also comes from the Latin,
and means “right,” or the “right-
hand” side of an account.
Abbreviated “CR.”
Assets
DR CR
Liabilities
DR CR
Capital

DR CR