DEFINITION OF ACCOUNTING

Accounting is an art of recording, classifying, summarizing and interpreting all those activities which can be presentable in monetary terms and usefull for all the stakeholders.

Its a language of business.

ACCOUNTING MAINLY CONCERNED WITH

Recording of business data.

Classification of recorded data. Analysis of summarized data. Preparation of statements and reports.

ACCOUNTING IS A MEAN TO AN END

Primary purpose of accounting is to provide information that is useful for decision making purpose .Therefor accounting is not an end but rather it is a mean to an end. Accounting information are used by owners ,management,creditor and government regularity bodies etc.

PARTIES INTERESTED IN ACCOUNTING INFORMATION

Owner wants to know the result of the activities i.e. Profit and loss and also the financial strength of the business. Creditors are interested to know the profitability and financial status of the business. Employee wants to know the stability, future prospects and scope of the business. Management needs various kinds of classified information for decision making technique. Various Govt. agencies are interested in firms activities in income. Business: Any activity undertaken for the purpose of earning profits such as a buying and selling of goods rendering services and manufacturing goods

TRANSACTION
Any dealing between two or more person for goods and services which effect the financial position of a business and also can be measured in terms of money is called business transactions

ACCOUNTING CYCLE
The sequence of accounting procedures used to record, classify and summarize accounting information is often termed as accounting cycle. Journal Ledger Trial Balance Adjustment

Adjusted Trial Balance

Financial Statements Closing Entries After Closing Trial Balance

TRANSACTIONS
Nov 1: Asad started business by depositing 80,000 $ in a company bank account. Nov 3: Purchase land for 52,000 $ by paying cash. Nov 5: Purchased a building for 36,000 $ paying 6,000 $ in cash and issuing a note payable for the remaining 30,000 $. Nov 17: Purchased tools and equipments on account for 3,800 $ Nov 20; sold some of the tools at the price equal to their cost 1800 $ collectable within 45 days.

Nov 25: Received 600 $ in partial collection of the account reliable from the sale of the tools.
Nov 26: Paid 6,800 $ in partial payment of an account payable Nov 30: Recorded 2,200 $ of sale revenue received in cash. Nov 30: Paid 1,400 $ of operating expenses in cash.

GENERAL JOURNAL
Date
2006 Nov 1 3 5

Accounts title Explanation

Cash Asad Capital Land Cash Building Cash Notes Payable

Debit
80,000

Credit

80,000 52,000 52,000 36,000 6,000 30,000 13,800 13,800 1,800 1,800 600 600 6,800 6,800 2,200 2,200 1,400 1,400

17 20 25 26 30 30

Tools and Equipments Accounts Payable Accounts Receivable Tools and Equipments Cash Accounts Receivable Accounts Payable Cash Cash Sales Expenses Cash

FINANCIAL STATEMENT

These are standard format statements which share the information about business with stakeholders in monetary terms

TYPES OF FINANCIAL STATEMENTS

A=Balance Sheet

B=Income Statement

C=Cash Flow Statement

A=BALANCE SHEET

A financial statement which shows the financial position of a business at a particular time. Its a picture of business .

COMPONENTS OF BALANCE SHEET

A=Assets.

whatever business /company possesses which have to give future benefits are called assets

TYPES OF ASSETS

1= Current Assets.
The assets utilized or that gives benefits within one accounting period 2=Fixed Assets or Long Term assets. Those assets which we utilize in more than one accounting period .

3=Tangible Assets.
Those assets which we can touch, A=Depreciable B=Non Depreciable

CONTINUED
4=Intangible Assets. Those assets which have no physical existence and are non current like good will etc. 5=Natural Resources. The resources of petroleum ,gases ,forests etc.These are in raw form for use businnes do activities

B = LIABILITIES

The obligations to transfer benefit to the claimer {external parties} that may be the result of past or current event,it represents negative future cashflow

TYPES OF LIABILITIES

A=Current Liability.

The obligation payable with in one accounting period. B=Long Term Liability. The obligations payable in more than one accounting period. C=Owner Equity.
The residual claim of the owner to the assets of the business.

B = INCOME STATEMENT

It is the statement of earnings (performance) of a business for a period of time or it is a statement that measures the revenues and expenses for a period of time.

COMPONENTS OF INCOME STATEMENT

1=Revenues.

Cash in flows from delivering or producing goods ,services or other activities that constitutes the entity major or central operations OR price of goods sold or services rendered.
2=Expenses. cash Outflows from delivering or producing goods, rendering services or other activities that constitutes the entity major or central operations OR the cost of doing business.

C = CASH FLOW STATEMENT

A financial statement that reports cash reciepts and payments of a business for a period of time

TYPES OF CASH FLOW

1=Operating Cash Flows. The cash in /out flows from normal operating activities. Example: A/R , Rent, A/P etc. 2=Investing Cash Flows. Cash in /outflow from purchasing and selling assets. 3=Financing cash Flows. The cash flows from the owner investing in the company and creditors loaning money to the company and repayment of either or both