Note

1. Understanding Accounting
Prepared by Mohamed Farrag
LOCGULF
December 3, 2015
Authored by: Mohamed Farrag
@: farrag.l10n@gmail.com
+601127571965
+971528859306

2. How do organizations communicate business information?
Achieving requires sharing of a
Important Terms:
 Organization.
 Communication.
 Common Language.
 Business Information.
Accounting + Finance = Key Activities
Accounting + Finance = Common Language = Sharing Business Information.
Accounting is Internal Function.
Accounting involves ( / / ).
Important Terms:
 Business Transactions.
 Financial Events.
 Bookkeepers.
Fact
Financial Statements upon Accounting Data
Preparation Presentation
Management
Internal Stakeholders
External Stakeholders

3. External
Information
Financial
Statements
Accounting
Data

4. Budgeting
Short Term & Long
Term Financing
Forecasting
Analyzing
Determining
&
Managing
Project Risks
Financial
Statements
Capital
Markets
Managing &
Controlling Assets
Studying
Money

5.  Business Success is measured in financial terms.
Stakeholders need a way to track economic activity and understand what’s really going
on with the business.
is the function that transforms the numbers associated with economic
activity into usable financial information.
 is a multi-layered function.
 reflect an organization’s
 shared with the
 aren’t the only
 Accountants are required to provide decision makers and controllers with interim reports
& information.
 More often the not, involves and the
– including the – for its users.
 Marketing Departments may want to know which product is more profitable before they
decide on new advertising campaigns.
 Every conducted within a business has a direct or indirect effect on
the finance of the company.
 The in Known as
 begins with which to
 What constitutes
1. Expressed in Monetary Terms.
2. Must be related to the business.
 offers a on the of an organization.
 events also have significant impact on the financial well-being of the
organization and need to be considered along with accounting information.
 The second activity in transactions, after classified
them in various accounts.
 is a part of accounting function.
 involves;
1. The mechanical aspect of recording.
2. Classifying.
3. Summarizing transactions in several accounting areas.
4. Compiling data in the general ledger
5. Posting the data to the respective financial statements.
 The setup the bookkeeping system, monitors it, and prepares &
presents financial statements.

6.  Bookkeeping is used to track business activity by recording what a transaction affects
and how it affects it.
 Each transaction affects specific account, and impacts what a company owes or owns.
 There are two common system of bookkeeping.
1. Single Entry.
2. Double Entry.
Single Entry: Simplistic, Making it accessible to organizations and people with limited
accounting knowledge.
Instance:

7.  The single entry system records each transaction only once.
 Single Entry System is suitable for small organizations.
 Double Entry Bookkeeping has become the standard.
 The Double Entry Bookkeeping System represents the two-fold effect of each
transaction.
 The Double Entry Bookkeeping assumes that, the money never gained or lost.
 The Double Entry Bookkeeping assumes the money transferred from a source account
to a destination account.
 Each Transaction is recorded twice, at Double Entry Bookkeeping.

8.  Two types of accounting methods are commonly used to record business transactions.
1. Cash Method.
2. Accrual Method.
 The most common combination –and popularly considered the standard of business- is
the Double Entry Bookkeeping + Accrual Accounting.
 Two supporting activities.
1. Analyzing & classifying each transaction to determine which account or accounts
are affected.
2. Determining how the account is affected.
 Analyzing the transaction means determining which accounts the transaction increases
or decreases, and then whether the accounts affected are increased or decreased by
credit or debit.

9. Instance

10. Two books are used to record transactions.
1. Journals.
2. Ledgers.
A general journal holds a chronological listing of daily transactions.
 This is the only place that all the details of a transaction are recorded.
 Each Entry contains the date, accounts affected, a reference, the debit & credit
amounts, and an explanation of the transaction.
 The general ledger is used to organize transactions by individual accounts and to post the
transactions recorded in the journal into these accounts.
 Journal transactions are transferred to the ledger daily or weekly.
 A journal reference is recorded in the ledger.

11.  Correcting Entries are made to address any recording errors.
 Any Adjustment Entries are made at the end of the accounting period.
 Following the adjustment of the trial balance, financial statements can be prepared.
 Once the trial balances and the accounting data are complete and accurate, financial
statements are prepared and temporary accounts are closed.
 are of a over abusiness financial performance
specific period of time.
 are shared with both within and outside the
company.

14. ASSETS= LIBALITIES+EQITY

15. Ethics in Financial Reporting is Fundamental Business Concept.
Ethical Standards also guide how accountants record transactions.
Following 3steps can help accountants approach and resolve ethical issues.
1. Recognizing ethical situations and the issues involved.
2. Identifying stakeholders and analyzing their involvement.
3. Identifying solutions and considering the impact of each.

16. The important Principles of the financial statements.
1. Financial statements are one of many sources of communicating financial
information about an organization.
2. The values reported are approximate measures.
3. Financial Statements are general purpose.
4. The preparation of financial statements based on Accrual Accounting.

17. Identfying Recording Reporting Analyzing Interpreting