4. ➰Accounting➰
💧The process of recording of business transection is called accounting .
Or,
💧The action or process of keeping financial accounts is called accounting .
And also,
💧Accounting is one kind of information system that identifies records and communicates the
economic events of an organization to interested user .
5. ➰Accounting Activities➰
There are Three Activities :
↪ Identification – Select economic events [Transaction] .
↪ Recording – Record, Classify and Summarize .
↪ Communication – Prepare accounting reports .
Accounting involves, the entire process of identifying, recording and communicating economic
events .
6. ➰GAAP➰
( Generally Accepted Accounting Principal)
The common set of accounting principles, standards and procedures .
Generally accepted accounting principles (GAAP) are the standard framework of guidelines for
financial accounting used in any given jurisdiction; generally known as accounting standards or
standard accounting practice. These include the standards, conventions, and rules that accountants
follow in recording, summarizing and in the preparation of financial statements.
7. ➰SOX System
Sarbanes – Oxley Act➰
The Sarbanes-Oxley Act of 2002 has dramatically affected overall awareness and management of internal
controls in public corporations. Responsibility for accurate financial reporting has landed squarely on the
shoulders of senior management, including the potential for personal criminal liability for CEOs and
CFOs. Since modern accounting systems are computer based, accurate financial reporting depends on
reliable, and secure, computing environment .
8. ➰Accounting Equation➰
An accounting equation is a mathematical expression which shows that the asset and liabilities of a firm are equal .
= +
Assets Liabilities
Owner’s
Equity
Basic Equation Assets = Liabilities + Owner’s Equity
Expanded Equation Assets = Liabilities + Owner’s Capital – Owner’s Drawing + Revenues - Expenses
18. Transaction 7:
Withdrawal of cash by owner 1,300/- .
The asset Cash decreases 1,300/- and owner’s equity decreases 1,300/- due to owner’s withdrawal (Owner’s Drawings) .
Assets = Liability + Owner’s Equity
Cash + Accounts
Receivable
+ Supplies + Equipment =
=
Accounts
Payable
+ Owner’s
Capital
- Owner’s
Drawings
+ Revenues - Expenses
9,350/- 1,400/- 1,600/- 7,000/- 1,600/- 15,000/- 4,700/- 1,950/-
-1,300 -1,3000
8,050/- + 1,400/- + 1,600/- + 7,000/- 1,600/- + 15,000/- - 1,300/- + 4,700/- - 1,950/-
18,050/- 18,050/-
An equal decrease in assets and owner’s equity .
19. ➰Financial Statements➰
Companies prepare four financial statements from the summarized accounting data :
⤵ ⤵ ⤵ ⤵Income
Statement
Owner’s Equity
Statement
Balance Sheet Cash Flows
20. Income Statement
Dane’s Shop
Income Statement
For the month ended June 30 2014
Revenues : 5,850/-
Service Revenue Expense :
Salary Expense 2,000
Rent Expenses 400
Advertising Expenses 250
Total Expenses 2,650
Net Income 3,200/-
Reports the revenues and expenses for a specific
period of time .
Net income revenues exceed expenses .
Net Loss – expenses exceed revenues .
21. Income Statement
Dane’s Shop
Income Statement
For the month ended June 30, 2014
Revenues : 5,850/-
Service Revenue Expense :
Salary Expense 2,000
Rent Expenses 400
Advertising Expenses 250
Total Expenses 2,650
Net Income 3,200/-
Dane’s Shop
Owner’s Equity Statement
For the month ends June 30, 2014
Dane’s , Capital June,
Add Investment 10,000
Net Income 3,200
13,200
Less Drawings 1,000
12,200/-
Net income is need to determine the ending
balance in owner’s equity .
22. Statement indicates the reason why
owner’s equity has increased or decreased
during the period of time .
Dane’s Shop
Owner’s Equity Statement
For the month ends June 30, 2014
Dane’s , Capital June,
Add Investment 10,000
Net Income 3,200
13,200
Less Drawings 1,000
12,200/-
23. Balance Sheet
Dane’s Shop
Income Statement
For the month ended June 30, 2014
Assets
Cash 6,820/-
Accounts receivable 630
Equipment 5,000
12,450/-
Liabilities
Accounts Payable 250/-
Owner’s Equity
Dane’s Capital 12,200
12,450
Dane’s Shop
Owner’s Equity Statement
For the month ends June 30, 2014
Dane’s , Capital June,
Add Investment 10,000
Net Income 3,200
13,200
Less Drawings 1,000
12,200/-
The ending balance in owner’s equity is needed
in preparing the balance sheet.
24. Balance Sheet
Dane’s Shop
Income Statement
For the month ended June 30, 2014
Assets
Cash 6,820/-
Accounts receivable 630
Equipment 5,000
12,450/-
Liabilities
Accounts Payable 250/-
Owner’s Equity
Dane’s Capital 12,200
12,450
Reports the assets, liabilities and owner’s equity
at a specific date .
Assets listed at the top, followed by liabilities
and owner’s equity .
Total assets must be equal to liabilities and
owner’s equity .
25. Balance Sheet
Assets
Cash 6,820/-
Dane’s Shop Statement of Cash Flows for the
Month Ended June 30, 2014
Cash flow from operating activities
Cash receipts from revenues 5,220/-
Cash paid for expenses (2,400)
Cash provided by operations 2,820
Cash flow from investing activities
Purchase of equipment (5,000)
Cash flow from financing activities
Investment by owners 10,000
Drawings by owners (1,000)
Cash provided by financing 9,000
Net increase in Cash 6,820
Cash balance, June 1 _
Cash balance June 30 6,820/-
26. Information for a specific
period of time .
Dane’s Shop Statement of Cash Flows for the
Month Ended June 30, 2014
Cash flow from operating activities
Cash receipts from revenues 5,220/-
Cash paid for expenses (2,400)
Cash provided by operations 2,820
Cash flow from investing activities
Purchase of equipment (5,000)
Cash flow from financing activities
Investment by owners 10,000
Drawings by owners (1,000)
Cash provided by financing 9,000
Net increase in Cash 6,820
Cash balance, June 1 _
Cash balance June 30 6,820/-
Statement of cash flows