Accounting Week 1

Accounting Purpose: of accounting is to provide financial information about a business or other economic entity. This information is needed by management, creditors, investors and the public. Purpose: of accounting is to provide financial information about a business or other economic entity. This information is needed by management, creditors, investors and the public.

Accounting Functions of accounting: Functions of accounting: Recording (writing transaction in book-journal) further sub divided in subsidiary books cash journal,purchase journal, sales journal etc. Recording (writing transaction in book-journal) further sub divided in subsidiary books cash journal,purchase journal, sales journal etc. Classifying (grouping transactions or entries of one nature of one place). Classifying (grouping transactions or entries of one nature of one place). Summarizing (classified information ).Preparation of two statements.1 Trading profit and loss account and 2balance sheet. Summarizing (classified information ).Preparation of two statements.1 Trading profit and loss account and 2balance sheet.

Accounting Functions of accounting: Functions of accounting: Deals with financial transactions: recording transactions in term of money which are financial character. Deals with financial transactions: recording transactions in term of money which are financial character. Interprets: The recorded financial data is interpreted in a manner that the end users can make a meaningful judgment about the financial conditions and profitability of the business operations. Interprets: The recorded financial data is interpreted in a manner that the end users can make a meaningful judgment about the financial conditions and profitability of the business operations.

Accounting Book Keeping :The science and art of correctly recording in books of accounts all those business transactions that result in the transfer of money’s worth. Book Keeping :The science and art of correctly recording in books of accounts all those business transactions that result in the transfer of money’s worth. Single entry Single entry Double entry book keeping: Every transaction involves two fold aspects e.g an aspect of receiving and an aspect of giving. One who receives is a debtor (Dr) and one who gives is a creditor (Cr). Under the double entry system both aspects of giving and receiving are recorded in terms of accounts. The account which receives the benefit is debited and the account which gives the benefit is credited. Double entry book keeping: Every transaction involves two fold aspects e.g an aspect of receiving and an aspect of giving. One who receives is a debtor (Dr) and one who gives is a creditor (Cr). Under the double entry system both aspects of giving and receiving are recorded in terms of accounts. The account which receives the benefit is debited and the account which gives the benefit is credited.

Accounting Advantages of double entry system. Advantages of double entry system. 1. Trial balance can be drawn up on any day to prove the arithmetical accuracy of record. 2. It helps to prepare trading p&l account from which you can get gross and net profit figures. 3. It helps to prepare balance sheet 4. It prevents fraud (alteration in accounts very difficult. 5. It helps to take managerial decisions.

Accounting Disadvantages of double entry book keeping. Disadvantages of double entry book keeping. 1. The system requires the maintenance of a number of books which is not practical in small concerns. 2. The system is costly. 3. There is no guarantee of absolute accuracy. 4. The system requires personal judgment of the accountant.

Accounting Accounting Equation: Accounting Equation: Assets= Liabilities + Proprietorship Assets= Liabilities + Proprietorship Assets- liabilities= Proprietorship Assets- liabilities= Proprietorship Liabilities + Proprietorship =Assets Liabilities + Proprietorship =Assets

Accounting Rules of Debit and Credit: Rules of Debit and Credit: Asset accounts: Asset accounts: Increases are recorded by debit Increases are recorded by debit Decreases are recorded by credit Decreases are recorded by credit Expense accounts Expense accounts Increases are recorded by debit Increases are recorded by debit Decreases are recorded by credit Decreases are recorded by credit

Accounting Rules of Debit and Credit: Rules of Debit and Credit: Owner’s equity: Owner’s equity: Increases are recorded by credit Increases are recorded by credit Decreases are recorded by debit Decreases are recorded by debit Income accounts Income accounts Increases are recorded by credit Increases are recorded by credit Decreases are recorded by debit Decreases are recorded by debit

Accounting Rules of Debit and Credit: Rules of Debit and Credit: Liabilities Liabilities Increases are recorded by credit Increases are recorded by credit Decreases are recorded by debit Decreases are recorded by debit

Accounting Capital: amount and property invested in business. Capital: amount and property invested in business. Drawing :amount/merchandise withdraws by owner for personal use. Drawing :amount/merchandise withdraws by owner for personal use. Merchandise inventory or stock: Goods unused or not sold. Merchandise inventory or stock: Goods unused or not sold. Bad debts or uncollectable: when amount receivable is un collectable. Bad debts or uncollectable: when amount receivable is un collectable. Equity: A claim enforceable against asset or right to properties are called equity. Equity: A claim enforceable against asset or right to properties are called equity. Owner equity : capital or proprietor ship Owner equity : capital or proprietor ship Creditors equity: Debts of business or liabilities. Creditors equity: Debts of business or liabilities.

Accounting Advantages of a journal. Advantages of a journal. Journal shows the complete story of transaction in one entry. Journal shows the complete story of transaction in one entry. It helps to locate and prevent errors. It helps to locate and prevent errors. Journal provides a data wise record of all the transactions. Journal provides a data wise record of all the transactions. A mistake in ledger can be easily detected with the help of journal. A mistake in ledger can be easily detected with the help of journal. It provides an explanation of the transaction. It provides an explanation of the transaction.

Post. Ref. JOURNAL DateDescriptionDebitCredit Page Nov Cash Capital Stock Issued capital stock for cash. (A)On November 1, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions in exchange for capital stock.

Accounting Problem: On july 1, Ahmed traders started a business with a cash investment of Rs 95,000. He completed the following transactions during the month of July. Problem: On july 1, Ahmed traders started a business with a cash investment of Rs 95,000. He completed the following transactions during the month of July. July July 04 Purchased goods on account from Zafer Rs 20, Purchased goods on account from Zafer Rs 20, Purchased office furniture on credit from Moin furniture Rs 15, Purchased office furniture on credit from Moin furniture Rs 15, Sold goods for cash Rs 12,000 and on account Rs 9, Sold goods for cash Rs 12,000 and on account Rs 9, Paid Zafer Rs 11, Paid Zafer Rs 11, Collection from customer Rs 4, Collection from customer Rs 4, Purchase office supplies for cash Rs 2, Purchase office supplies for cash Rs 2, Paid office salaries Rs 13, Paid office salaries Rs 13,000.

Accounting Exercise: Exercise: Transactions of Razzaq & Company Transactions of Razzaq & Company 1. Razzaq started business with a cash investment of Rs and equipment in the shape of calculator and computer valued at Rs 80, Purchased merchandise on account from Qadir Rs 16,000 and for cash Rs.24, Sold mechandise for cash Rs and on account Rs 6, Returned merchandise to Qadir Rs Merchandise returned by customer Rs Cash deposited into the bank Rs 14, Paid rent Rs 3000 and commission Rs 2, Withdrew from bank Rs 5,100 for personal use. 9. Paid to qadir Rs 4,900 (discount Rs.100).