Financial accounting

1. FINANCIAL
ACCOUNTING
REVISION

2. CHAPTER 1: ACCOUNTING IN ACTION
• Learning Objectives
• LO 1 Identify the activities and users associated with accounting.
• LO 2 Explain the building blocks of accounting: ethics, principles, and
assumptions.
• LO 3 State the accounting equation, and define its components.
• LO 4 Analyze the effects of business transactions on the accounting
equation.
• LO 5 Describe the four financial statements and how they are prepared.

3. ACCOUNTING ACTIVITIES AND USERS
• Accounting consists of three activities
• 1. Identification
• 2. Recording
• 3. Communication

4. WHO USES ACCOUNTING DATA
• Internal users
• External users

5. MEASUREMENT PRINCIPLES
• Historical Cost Principle
• Fair Value Principle
• Monetary Unit Assumption
• Economic Entity Assumption

6. THE ACCOUNTING EQUATION
• Total Assets = Total Liabilities + Owner’s Capital
• Owner’s Capital:
• Equity
• Revenue
• Expense
• Drawing

7. CHAPTER 2
THE RECORDING PROCESS
• Learning Objectives
• LO 1Describe how accounts, debits, and credits are used
to record business transactions.
• LO 2 Indicate how a journal is used in the recording
process.
• LO 3 Explain how a ledger and posting help in the
recording process.
• LO 4 Prepare a trial balance.

8. ANALYZING BUSINESS TRANSACTIONS

9. ACCOUNTS, DEBITS, AND CREDITS
• Assets - Debits should exceed credits
• Liabilities – Credits should exceed debits
• Normal balance is on the increase side
• Owner’s investments and revenues increase owner’s
equity (credit)
• Owner’s drawings and expenses decrease owner’s
equity (debit)

10. ACCOUNTS, DEBITS, AND CREDITS
• Earning revenues is to benefit owner(s)
• Effect of debits and credits on revenue accounts is the
same as effect on Owner’s Capital
• Expenses have opposite effect

11. DEBITS AND CREDITS
Double-entry system
• Each transaction must affect two or more accounts to
keep basic accounting equation in balance
• Recording done by debiting at least one account and
crediting at least one other account
• DEBITS must equal CREDITS

12. ACCOUNTING PROCESSES

13. CHAPTER 3
ADJUSTING THE ACCOUNTS
• LO 1 Explain the accrual basis of accounting and the reasons for
adjusting entries.
• LO 2 Prepare adjusting entries for deferrals.
• LO 3 Prepare adjusting entries for accruals.
• LO 4 Describe the nature and purpose of an adjusted trial balance.

14. ACCRUAL-BASIS AND ADJUSTING ENTRIES
Accrual-Basis Accounting
• Transactions recorded in the periods in which the
events occur
• Companies recognize revenues when they perform
services (rather than when they receive cash)
• Expenses are recognized when incurred (rather than
when paid)
• In accordance with International Financial Reporting
Standards (IFRS)

15. ACCRUAL- VERSUS CASH-BASIS ACCOUNTING
Cash-Basis Accounting
• Revenues recognized when cash is received
• Expenses recognized when cash is paid
• Cash-basis accounting is not in accordance with
International Financial Reporting Standards (IFRS)

16. RECOGNIZING REVENUES AND EXPENSES
• Revenue Recognition Principle
• Expense Recognition Principle

17. TYPES OF ADJUSTING ENTRIES

18. CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE
• LO 1 Prepare a worksheet.
• LO 2 Prepare closing entries and a post-closing trial balance.
• LO 3 Explain the steps in the accounting cycle and how to prepare
correcting entries.
• LO 4 Identify the sections of a classified statement of financial position.

19. THE WORKSHEET

20. PREPARE FINANCIAL STATEMENTS
• Income statement : Revenue; Expenses and Net Income
• Owner’s Capital:
• Statement of Financial Position :
• Total Assets = Current Assets + Non – current Assets
• Total Liabilities = Current Liabilities + Non- Current Liabilities
• Owner Capital = Equity + Retained Earning - Drawing

21. CLOSING THE BOOKS

22. CHAPTER 5
ACCOUNTING FOR MERCHANDISE OPERATIONS
• Learning Objectives
• LO 1Describe merchandising operations and inventory
systems.
• LO 2 Record purchases under a perpetual inventory system.
• LO 3 Record sales under a perpetual inventory system.
• LO 4 Apply the steps in the accounting cycle to a
merchandising company.
• LO 5 Prepare financial statements for a merchandising

23. INVENTORY SYSTEMS
• Perpetual System
• Periodic System

24. RECORDING PERPETUAL SYSTEM - BUYER
Purchasing:
Debit Inventory
Credit Accounts Payable
Freight In cost:
Debit inventory
Credit Cash
Purchase Returns and Allowances
Debit Accounts Payable
Credit Inventory

25. RECORDING PERPETUAL SYSTEM - BUYER
• Purchase discount
Debit Accounts Payable
Credit Cash
Credit Inventory

26. RECORDING PERPETUAL SYSTEM – SELLER
• Sales record
Debit Cash/ Accounts Receivable
Credit Sales revenue
Debit Cost of Goods sold
Credit Inventory

27. RECORDING PERPETUAL SYSTEM – SELLER
• Sales returns and Allowances
Debit Sales returns and allowances
Credit Accounts Receivable
Debit Inventory
Credit Cost of Goods sold

28. RECORDING PERPETUAL SYSTEM – SELLER
• Sales discounts
Debit Cash
Debit Sales Discounts
Credit Accounts Receivable
Adjusting entries:
Debit Cost of Goods sold
Credit Inventory

29. RECORDING PERIODIC SYSTEM – BUYER
• Purchasing:
Debit Purchase
Credit Accounts Payable
Freight – In cost
Debit Freight – In Expense
Credit Cash

30. RECORDING PERIODIC SYSTEM – BUYER
• Purchase return and allowances
Debit Accounts Payable
Credit Purchase Returns and Allowances
Purchase discount
Debit Account Payable
Credit Purchase Discount
Credit Cash

31. RECORDING PERIODIC SYSTEM – SELLER
• Sales
Debit Accounts Receivable
Credit Sales revenue
Sales returns and Allowances
Debit Sales returns and allowances
Credit Account receivable

32. RECORDING PERIODIC SYSTEM – SELLER
• Sales discounts
Debit Cash
Debit Sales Discounts
Credit Account Receivable