2. Accounting
Accounting consists of:
Recording daily transactions of a business in the
journals (book of first entry)
Posting transactions in the journals to the general
ledger
Calculating the trial balance
Completing income statement and balance sheet
Prepare and analyse financial statements
3. Assets
Assets are useful and valuable items that belong to
a company.
• Current assets: Assets that are expected to be
converted to cash within a year. (Trading stock,
cash in bank account, debtors, etc.)
• Non-current assets: Assets that are unlikely
going to be converted into cash within a
financial year. (Buildings, cars, equipment, etc.)
4. Liabilities
Liabilities are financial obligations that a company
owes to other entities or people.
• Current liabilities: Liabilities expected to be paid
to creditors within an accounting year. (e.g. 60
days account for goods purchased, overdraft)
• Non current liabilities: Liabilities that are not
expected to be paid within an accounting year.
(e.g. bond payable)
5. Owner’s equity
The owner’s equity represents:
• The cash and other assets the owners of the
business have invested in the business
• Minus all the withdrawals and drawings (cash
and other assets the owners take for personal
use)
• Plus/minus profits & loss the business has
made within an accounting year
6. Income
Cash that a company receives for selling a good,
providing a service or by investing capital. (e.g.
When Toyota sells a car, it receives cash. That
cash is an income for Toyota)
7. Expenses
Cost incurred or cash spent by a company as a
result of its operations and revenue generation
activities. (e.g. salaries, rent paid, telephone bill,
etc.)
8. Profits
Financial gains that a company generates when
the amount they have earned is greater than the
amount they have spent within an accounting
year.
9. Loss
Amount of money that a company loses when
the amount they have earned is lesser than the
amount they have spent within an accounting
year.
10. Accounting cycle
• Daily: Transactions take place and are recorded in book of first
entry (Journals):
• General journal (GJ)
• Cash receipt journal (CRJ)
• Cash payment journal (CPJ)
• Debtors journal (DJ)
• Creditors journal (CJ)
• Debtors allowances journal (DAJ)
• Creditors allowances journal (CAJ)
• Wage journal (WJ)
• Salaries journal (SJ)
• Petty cash book (PCB)
11. Accounting cycle (Cont.)
• Daily-Monthly: Transactions recorded in journals are posted
from journals to ledgers and ledger accounts:
• General ledger: Main accounting record summarising all the
transactions of the company including creditors and debtors
ledgers.
• Debtors ledger: Contains all information about each debtors,
the cash balance they owe, the discount they received, the
cash they paid, etc.
• Creditors ledger: Contains all information about each
creditors, the cash balance the company owes them, the
payment the company has made, the discount they gave the
company, etc.
12. Accounting cycle (Cont.)
• Monthly: Prepare trial balance.
• Trial balance: It is a worksheet in which the
balances of all ledgers are compiled into debit and
credit columns in order to check accuracy, identify
errors and amend ledgers if required.
13. Accounting cycle (Cont.)
• Yearly: Financial statements are prepared and
analysed.
• Pre-adjusted trial balance is finalised
• Make year-end adjustment to ledgers and journals
where required and close-off final ledger accounts
• Post-closing trial balance is finalised
• Financial statements are prepared (Income
statement to show profit/loss of the company,
balance sheet to show financial position)
• Financial statement are interpreted and analysed
