Presentation by Andreas Schleicher Tackling the School Absenteeism Crisis 30 ...
Understanding the basics of accounting
1. By Sir, Sukhram Das
Qualified by:
B. Com (Accounts) By: AIO University Umerkot
PMYSDP 6th month’s Course (Accounting &Bookkeeping)
BBSYDP 4th month’s course (Computerized Accounting)
2. Any activity undertaken for the objective of
earning benefit is called Business.
Type of Business
I. Manufacturing or Producing
II. Trading
III. Servicing
IV. Hybrid
3. The term denotes the business engaged in
producing commodities or engaged in changing
the shape of natural gift such as Sugar
industries, cement industries, cotton mill, iron
and steel industries, Radio and TV
manufacturing Units, Auto mobile
manufacturing industries.
4. Trading denotes the business which is
engaged in purchasing and selling
such as Motor dealers, Petrol pumps,
Merchants, Grosser, Furniture mart and
Garment shop.
5. Servicing denotes the business which
engaged in rendering skill or mechanical
service such as dry cleaners, Repair of Radio,
television, machine and watch etc. of advisory
service of tax and finance, Accountant,
advocate and doctors etc.
6. The hybrid denotes a business which is
engaged in manufacturing, servicing and
trading such as Restaurant.
7. The operation of business needs an
organization. An organization can be
controlled by a person, having talent of
different natures. Actually, organization may
be a “firm” , “concern” or enterprise” ,
“company units: and these all contain the
service of a group of persons.
8. 1. One person or Sole ownership
2. Two or more than two persons.
I. Partnership
II. Corporation
9. The Organization Owned by one person is
known sole ownership or sole proprietorship.
He can manage his business himself or
employ someone assist him
10. 1. Partnership
The organization owned by two or more than
persons is called partnership Each investor is
“Partner” .
2. Corporation
This is an organization owned by several
persons but the investors are called Share
holders or stock holders.
11. Define By (AICPA) American institute of Certified
Public Accountant, as the accounting is the art of
Recording, Classifying, Summarizing, Interpreting,
Reporting, Analyzing, Communicating, of a
Business data in the specific manner is called
accounting.
13. The term is denote to record in systematic
way with chronological order in the book of
account is called bookkeeping.
14.
15. Accounting is essential in every field of life
from the small business or private accounts
of small and large companies to the
government semi government, institutions,
even in school and collages etc.
16. 1. helpful in management of business, like
Planning
Decision making
Controlling
2. Provide complete and systematic record
3. Information regarding profit and loss
4. Information regarding financial position
5. Helpful in assessment of tax liability
6. Helpful in raising loan
19. These are things having value, which shall
provide benefit in future is called assets.
These are things having value, which are in
possession of a trader, or business that is
called assets.
Cash, Building. Land, machine, furniture, Bank
account, Etc.
Which have these conditions
(1) Legal ownership (2) Right to Use (3) Right to
dispose
20. Current Assets
Resources which will provide benefit with in a
accounting period is called current assets.
Resources which a utilizes within a year.
Non current Assets, or Fixed assets.
Resources having a long life which will provide
benefit without accounting year.
Not bought for resale
21. Tangible Assets
Which have physical existence which can show
and touch.
Exp. Building, Machine, furniture etc.
Intangible assets
Which have not physical existence which can
not be show or touch just can feel.
Goodwill, patents, knowledge
22. A value contributed by owner in the business
is called Capital or called owner’s equity.
the claim on business by owner.
Our own investment.
23. Which we have to pay in future.
The claim of outsiders on business.
Amount have to be paid in future.
Account payable, salaries payable, bank loan,
24. Current liability.
Which we have to pay within a accounting
period.
Non current liability.
Having a long life, opposite to current liability.
25. benefit of an asset already has been taken.
Loss of business
Debit of business
Salary, Rent, depreciation, bank charges,
Wages etc.
26. expense from sale of merchandise or any
services.
Sales, commission, Interest on bank, etc.
27. Any dealing between supplier and customer
in monetary terms is called transaction.
Any exchange of value is called transaction,
Exp. Purchase goods on cash
Purchased land, building, furniture,
merchandise, on credit / cash.
Payment made to supplier/ cash received
customer.
Withdraw cash from bank for personal use.
28. A person who responsible for maintaining
books of account and preparing results.
Cashier
A person who responsible for cash dealing.
29. The book which are limited to recording
business data. These are following.
1. General journal
2. Cash book
3. Purchase journal
4. Purchase returns & allowance journal
5. Sales journal
6. Sales returns & allowance journal
7. Petty cash book
30. Assets Liabilities
Cash in hand Account payable
Cash at bank Bank loan
Building Interest payable
Land Salaries payable
Furniture Rent payable
Accrued expenses Mortgage payable
Merchandise Inventory Accrued expense
Account Receivable
Bills receivable
Marketable security
Fixture
Contra assets
Accumulated depreciation- building
Accumulated depreciation- machinery
Chart of account
31. Revenue Expenses
Sales Wages expenses
Fees income Fees expense
Commission income Commission expense
Rent income Rent expense
Interest income Interest expense
Dividend Transporting
Bad debts recovered Bad debts
Salaries income Salaries expense
Sale of scrap Carriage
Lighting
Electricity bills
Telephone bills
Utility bills
Depreciation expense
Chart of account
32. To keep a company's financial data
organized, accountants developed a system
that sorts transactions into records
called accounts
33. These are two sides of a account debit as a left
hand side and other one right hand side of a
account.
Under the double-entry system every business
transaction is recorded in at least two accounts.
One account will receive a "debit" entry, meaning
the amount will be entered on the left side of that
account. Another account will receive a "credit"
entry, meaning the amount will be entered on
the right side of that account. The initial challenge
with double-entry is to know which account should
be debited and which account should be credited.
34. Every business transaction will have an effect on a company's
financial position. The financial position of a company is
measured by the following items:
Assets (what it owns)
Liabilities (what it owes to others)
Owner's Equity (the difference between assets and liabilities)
The accounting equation (or basic accounting equation) offers us
a simple way to understand how these three amounts relate to
each other. The accounting equation for a sole proprietorship is:
Assets = liabilities + Capital
The accounting equation for a corporation is:
Assets = liabilities + stockholders equity
.
35. Liabilities are a company's obligations—
amounts the company owes
Assets are a company's resources—things the
company owns.
From the accounting equation, we see that
the amount of assets must equal the
combined amount of liabilities plus owner's
(or stockholders') equity
36. 1. Mr. Raheel commenced his business with cash
Rs.900,000.
2. Purchased building on cash Rs.400,000.
3. Purchased merchandise on cash Rs.120,000.
4. Purchase merchandise from Zamir & co. for Rs.112,500
on credit.
5. Sold merchandise (At cost) Rs.26,500 on cash.
6. Merchandise of Rs.17,500 was sold for cash Rs.20,000
7. Part payment was made to Zamir & co. Rs.75,500.
8. Sold merchandise on credit to Abu bhai for Rs.47,500
at a profit of Rs.7,000
9. Paid salaries to employees Rs.11,800
10. Sold ¼ portion of building for cash Rs.32,5000 .
11. Merchandise returned to Zamir & co. Rs.2,500 and to
him cash Rs.34,500.
12. Received cash from Abu bhai Rs.25,000.
37. 1 Business Transactions; it means a financial
transaction entered into by to parties and
recorded in book of account.
It is expressed in terms of money.
An exchange (deal) value of a business
between two person in terms of money.
E.g Purchase of Goods, purchase of goods ,
rent paid, salary paid.
38. Goods are the physical items of trade
Which purchased for objective of resale.
It also called Inventory,
39. The term “Purchases” is used for purchase of
Goods for resale
Or producing finished products which are to
be sold of goods it include both Cash &
Credit.
The term “Sales” is used for sale of good
which are dealt by the firm.
The term Sales include both cash & Credit
Sale.
40. Stock is a tangible Asset held by the
enterprise (firm) for purpose of production or
sale of goods. Generally we calculate the
stock at the beginning and end of year.
Opening stock_ stock held at the beginning
of year.
Closing stock_ stock held at the end of year.
41. Purchase Return: It is also called returned
outward. Good purchased maybe return for
any reason (e.g. defective in quality)
Sales Return: it is also called returned inward.
Good sold, when return by customer are
called Sales Return
42. Debtor: Parties (person) to whom from has
goods or services sold on credit, in ordinary
course of business.
Bill receivable: It means a bill of exchange
accepted by a debtor, the amount of which
will be received on a specified date.
Trade Receivable=Debtors+Bills Receivable
43. Creditor: Parties from whom to purchase
goods or services on credit in ordinary course
of business.
Bills payable: it mean bills of Exchange
accepted by firm to pay fixed amount on a
specified date.
Trade payable= Creditors+Bills Payable
44. Revenue Expenditure
It is an amount paid or payable (expenditure
incurred), the benefit of which is consumed within the
current accounting period is called revenue.
E.g. Rent paid, salary paid, interest paid, wages paid.
These all payment must be for current year.
Capital Expenditure
It is an amount paid or payable (Expenditure
incurred), the benefit of which will be consumed in
future. it is also called Asset,
Such expenditure are incurred to acquire or to increase
the efficiency of the assets.
45. Non Current Assets
Those assets which are held by the Business from
the long term point of view for more the one
year.
E.g. machine, building, furniture, Goodwill, Long
term investment, etc.
Current Assets.
Those assets which are held by the business by
the form with the purpose of converting them
into cash or for using them within a short period
within one year.
E.g. Stock, Debtors bills receivable, Cash, Bank.
fixed asset: it is a part of non current asset
46. Tangible assets: those fixed assets which
have their physical existence which can
touch, seen.
Intangible assets: those assets which do not
have physical existence which can not touch,
seen,
47. It is an amount withdrawn or given by
proprietor or owner for their personal use is
called drawings.
48. Revenue Receipt: it is an amount received or
receivable from sale of goods and services. In
normal course of business.
Capital receipt:
Amount received or receivable from sale of
fixed assets. Which are not in revenue nature
49. When customers are allowed concession
(rebate) in the prices of goods or services or
from amount payable, it is called discount.
50. Trade discount. It is concession (rebate) allowed
by seller on basic of quantity or value of sales,
sales are recorded in accounts net sale price.
Gross sale price-trade discount=net sale price.
Purchases are recorded in accounts net purchase
price.
Gross purchase price-trade discount=net
purchase price
Trade discount is not recorded in book of
account.
51. It is concession (rebate) allowed to customers
for making timely payment or early payment.
It is called Cash discount.
52. If the amount becomes Irrecoverable from
debtor it maybe because of reason insolvent,
death of customer,
It is loss of business.
Insolvent person is a person who is not in a
position to pay his debt.
Solvent person is a person who is in position
to pay his debt.
Editor's Notes
Stock maybe divided in three part. Raw material, work in progress, finished product.