The document serves as an introduction to accounting, outlining its purpose as a language of business and its historical evolution. Key concepts include the accounting equation, the distinction between assets and liabilities, and the double-entry system. Various types of accounts and their roles in recording transactions are also discussed, emphasizing the importance of accounting information for informed business decisions.

1. Introduction to Accounting
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
Investment Advisor, International School Teacher
071 25 45 001

2. Introduction to Accounting
01) Introduction
02) Resources of a business (Assets)
03) Capital, Liabilities
04) Accounting entity concept
05) Accounting equation and its components
06) Recording transaction in the accounting equation
07) Building Double Entry System
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3. Accounting can be defined as a subject that tries to fulfill the information
requirement of stakeholders of any business. Accounting has been called as
the language of business. Current Accounting subject is a result of an
evolution of thousands years. Basically accounting information is submitted
through the financial reports of the business. Trading profit and loss account
(Income Statement) and Balance Sheet are the basic financial statements of a
business.
Accounting is a practical phenomenon and provides the discipline for
effective use of scarce resources around the business environment.
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Introduction

4. Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgment and decisions by the
users of the information.
Accounting began because people needed to:
* record business transactions,
* know if they were being financially successful, and
•know how much they owned and how much they owed.
It is known to have existed in one form or another since at least 3,500 BC
(records exist which indicate its use at that time in Mesopotamia). There is
also considerable evidence of accounting being practiced in ancient times in
Egypt, China, Greece, and Rome.
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5. However, it was only when Paciloi wrote about it in 1494 or, to be more
precise, wrote about a branch of accounting called, ‘bookkeeping’ that
accounting began to be standardised and recognised as a process or
procedure.
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6. Scope of Accounting
Accounting Process
Accounting
Inputs
(Transactions)
Accounting
Outputs
(Final
Accounts)Source
Documents
Prime Entry
Books
Ledger
Trial Balance
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7. Business Entity Concept
This concept shows that an organization (business) is different from
it’s owner/s. It is regarded as a separate person.
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Business Owner / Owners

8. Accounting Equation and its components.
Accounting Equation and its components.
Accounting equation shows two variables.
01) Assets
02) Liabilities
Assets = Liabilities
Owners Equity + External Liabilities
(Capital) (Liabilities)
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Assets = Capital + Liabilities

9. Assets (Resources of a business )
All the things used for economic activities in a business are called economic
resources. (resources owned by a business.)
Ex:- Land, Building, Stocks, Cash
Capital
Total value of resources supplied by the owner/s of the business.
Liabilities
Total amount of assets supplied by other parties.
Ex:- Bank Loan, Creditors, Bank overdraft
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10. Components of Accounting Equation.
Assets  The total economic resources of a business can be divided into current &
non-current Assets.
Current Assets Subject to change within 12 months or less than that.
e.g. :- Cash in hand/inventory
Non- Current Assets non subject to change within 12 months.
e.g. :- Buildings/ Lands
Liabilities  Funds invested by external parties can be divided in to current & non
current liabilities.
Current liabilities  Group of obligations that have to be repaid within 12
months.
e.g. :- Creditors / Bank over drafts.
Non current liabilities  Group of obligations that can be repaid in more
than 12 months.
e.g. :- Bank Loan/ Mortgage loan
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11. Basic features of accounts
01) Name of the account
02) Debit Side (left side)
03) Credit Side (right side)
Types of Accounts
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Types of Accounts Examples
01) Assets Accounts Building account, Cash account
02) Liabilities Accounts Bank loan account, creditors account
03) Capital Accounts Capital account, Drawings account
04) Expenses Accounts Salary account, Rent account
05) Income accounts Sales account, Rent received account.

12. Recording transactions in the accounting equation.
Example :-
Following transactions took place in David’s business.
01) David started by investing £ 50 000
02) Purchased a computer £ 40 000
03) Obtained a bank loan £ 50 000
04) Selling a stock worth £ 10 000
05) Deposited £ 10 000 in the bank.
06) Paid creditors £ 2000
07) Purchased stocks £ 5000
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13. Answer :-
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Assets = Capital + Liabilities
01) + 50 000
(Cash)
+ 50 000
(Capital)
02) + 40 000
(Computer)
- 40 000
( Cash)
03) + 50 000
( Cash)
+ 50 000
( Bank Loan)
04) + 10 000
(Cash)
- 10 000
(Stock)
05) + 10 000
(Bank)
- 10 000
(Cash)
06) – 2000
(Cash)
-2000
(Creditors)
07) +5000
(Stock)
- 5000
(Cash)

14. Assets = Capital + Liabilities
Profit/Loss for the period (result of the business) = Income – Expenditures
•Profit should be adjusted to the capital of the business supplied by the
owner/s.
Assets = Capital + Profit + Liabilities
Assets = Capital + (Income – Expenditures) + Liabilities
Assets = Capital + Income – Expenditures + Liabilities
Assets + Expenditures = Capital + Income + Liabilities
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Building Double Entry System

15. Assets + Expenditures = Capital + Income + Liabilities
Debit Credit
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Types of
Accounts
Normal
Balance Increase Decrease
Assets Debit Debit Credit
Expenditure Debit Debit Credit
Income Credit Credit Debit
Liabilities Credit Credit Debit
Capital Credit Credit Debit

16. I wish you an enjoyable learning…..!
Sanjaya Jayasundara
Talk, you teach. Listen, you learn.