1. Introduction Accounting Equation (A= L + SE) Accounting Cycle
Accounting Concepts
Revenue
Expense
Revenue Recognition
Matching Principle
Types of Adjusted Entries
Examples of Adjusted Entries
Impact without entries
Fei

2. Classification of Accounts
Personal Account
Real Account
Nominal Account

3. Classification of Accounts (Contd.)
Type
Rules for Debit
Rules for Credit
Personal Accounts
Debit the Receiver
Credit the Giver
Real Accounts
Debit what comes in
Credit what goes out
Nominal Accounts
Debit all expenses and losses
Credit all incomes and gains

4. The Accounting Equation
Relationship among the assets, liabilities and stockholders’ equity of a business:
Illustration 3-3
Emily
The equation must be in balance after every transaction. For every Debit there must be a Credit.

5. The Accounting Cycle Transactions 9. Reversing entries
Illustration 3-6
Transactions
9. Reversing entries
1. Journalization
8. Post-closing trail balance
2. Posting
7. Closing entries
3. Trial balance
Michael
6. Financial Statements
Work Sheet
4. Adjustments
5. Adjusted trial balance

6. Adjusting Entries
Revenues - recorded in the period in which they are earned.
Expenses - recognized in the period in which they are incurred.
Adjusting entries - needed to ensure that the revenue recognition and matching principles are followed. F

7. Types of Adjusting Entries
Illustration 3-20
Prepayments
Accruals
1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed.
3. Accrued Revenues. Revenues earned but not yet received in cash or recorded.
2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned.
4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded. F

8. Expedient Recording Method
Records an expense upon payment of cash before goods or services are consumed
Records revenue upon receipt of cash before goods or services are provided
Katie

9. Standard Recording Method
Asset upon payment of cash
Liability upon receipt of cash before goods or services are provided
Katie

10. Conclusion Accounting Concepts Standard Vs. Expedient Recording Method
Revenue and Expense
Revenue Recognition and Matching Principle
Standard Vs. Expedient Recording Method
Types of Adjusted Entries
Prepayments : Prepaid Expense and Unearned Revenue
Accruals: Accrued Rev. and Accrued Exp.
Impact without adjusted entries
Overstated A, L, SE, NI, RE
Understated A, L, SE, NI, RE
Katie and Fei

11. Statements of Financial Information
Balance Sheet
Profit and Loss Account
Statement of changes in financial position
- Cash flow statement
- Fund flow statement

12. Contents of Profit and Loss Account
Revenues : Turnover
Other income
Sale of fixed assets
Expenses
Profit / Loss

13. Revenues
Revenue is defined as the income that accrues to the firm by sale of goods and services or through investments
Sales Revenue is the amount earned through sale of goods/services
Gross sales is the total sales, while Net sales is gross sales minus the trade discounts

14. Revenue (Contd.)
Other income is earned through other sources of investments
Examples: Interest, dividend, royalty, commission, fee, etc
Sale of Fixed Assets are the revenues which come into the business when unused / unwanted assets are sold and money recovered by the company

15. Expenses The cost of earning the revenues are the expenses
Examples: variable expenses like cost of manufacture, cost of selling, fixed expenses like salaries, administrative expenses

16. Expenses The cost of earning the revenues are the expenses
Examples: variable expenses like cost of manufacture, cost of selling, fixed expenses like salaries, administrative expenses

17. Expenses The cost of earning the revenues are the expenses
Examples: variable expenses like cost of manufacture, cost of selling, fixed expenses like salaries, administrative expenses

18. Expenses (Contd.) Manufacturing expenses
These include all expenses related to plant and manufacturing operations like power and fuel, repairs and maintenance, stores consumed, water consumed, etc
Excise Duty
This is the amount paid to the Govt. as a tax, before the goods are dispatched from the factory

19. Expenses (Contd.) Salaries and Wages
These are the cost of labour and other staff and will also include all other employee benefits and amenities.
The other benefits include Provident Fund, ESI contributions, medical benefits, LTC, bonus, gratuity, pension, other superannuation benefits, etc

20. Expenses (Contd.) Administrative Expenses
These include office expenses, secretarial costs, postage and telephones, director’s remuneration and other administrative expenses
Selling Expenses
These include freight, advertising and sales promotion, commissions and discounts and other selling and distribution costs

21. Expenses (Contd.) Interest
The interest costs consist of interest on long term loans, debentures, bank loans for working capital, interest on public deposits and other loans
Depreciation
This represents a non cash expenditure as it is only an accounting provision. This amount is not paid to an outside party
Other expenses
This includes auditor’s remuneration, petty expenses, donations, etc

22. Profit / Loss The difference between the revenue and expense is profit
When expense exceeds the revenue, the company ends up with a loss.
PBID: Profit before Interest and Depreciation
PBT: Profit before Tax
PAT: Profit after Tax

23. The Profit Appropriations
Profit after Tax (PAT) is available for appropriations for
Debenture Redemption Reserve
General Reserve
Dividend on Preference Share
Dividend on Equity Share