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Introduction to acccounting chapter 2 new


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BIT 163 Chapter Two

BIT 163 Chapter Two

Published in: Business, Economy & Finance

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  • 2. Financial Statement (FS)
    • Definition of FS
    • -Describe the information presented in financial statements, be able to prepare simple financial statements, an analyze a company’s performance with the return on equity ratio.
  • 3. Trading Account
  • 4. The Income Statement
  • 5. The elements of IS
    • Revenues
    • -Inflows of assets received in exchange for goods or services provided to customers as part of the major or central operations of the business.
    • -Decreases in liabilities
    • Expenses
    • -Outflows or the using up of assets as a result of the major or central operations of a business.
    • -Increases in liabilities
  • 6. Balance Sheet
    • The financial Statement drawn up at the end of an accounting period, it is record details of the companies assets, liabilities and owner’s equity (capital).
  • 7. Balance Sheet
  • 8. Assets, Liabilities and Equity
    • Assets in general is the business properties or economic resources owned by the business.
    • Assets defined as probable future economic benefits obtained or controlled by a particular entity as a result of past transaction or events
    • Assets are things owned by the business and they fall under two headings:
    • -Fixed eg Land, Buildings, Fixtures and Fittings, Office Equipment (Computers), Software and machinery for long term used.
    • -Current eg Cash, Debtors (Account Receivables), patent or copyright
  • 9. Assets, Liabilities and Equity
    • The liabilities of a business are its debts to others.
    • Liabilities are defined as probable future sacrifices of economics benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as the result of past transactions or events.
    • Liabilities are things owed by the business and they falls under two headings:
    • Long Term eg Bank Loan and Mortgage > one year to repay
    • Current eg Overdraft and Creditor < one year to repay
  • 10. Assets, Liabilities and Equity
    • Owner’s equity is defined as “the residual interest in the assets of an entity that remains after deducting its liabilities. Also called as net assets.
    • Its comprises that funds invested in the business by the owner plus any profits retained for use in the business less any share of profits paid out of the business to the owner. There are five components such as Opening Capital, Additional Capital, Drawings, Net Profit/Net Loss and Closing Capital.
    • E.G Capital is money or any other asset used by proprietor to start or run a business
  • 11. AP
    • Account Payable (Creditor)
    • A person or company that the firm owed money to them for goods or services received. Eg: if designing company bought material from company B on credit than the company B become creditor to the firm.
  • 12. AR
    • Account Receivable (Debtor)
    • A person or company which owes money
    • to the firm for a goods and services supplied to them.E:g If Designing Firm giving its services to company A on credit than the company (A) become Debtor to the firm.
  • 13. Accounting Equation
    • The fundamental concepts of accounting is base on the accounting equation
    • Assets=Liabilities + Owner’s Equity
    • Or
    • Assets=Liabilities + Owner’s Equity + Revenue - Expenditure
  • 14. The effects of transactions on the accounting equation
    • Please refer the excel spreadsheet as per below slide.
  • 15. Accounting Equation
  • 16. Continue……