Accounting Basics level2
Transcript of Accounting Basics level2
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Basic Accounting Level II By
Sivakumar Ganesan B. Sc, ACA, ICWA, PMP, PDIM Global Technology Services LLc, UAE
Email:[email protected]
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Agenda
What is Accounting
Mode of Learning Accounting
Accounting and Finance - Difference
Accounting Concepts / Conventions
Accounting Events
Rules of Accounting
Preparation of Financial Statements
A Simple Case Study
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Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements
JOURNAL
PAYMENT
Vision Enterprises
Financial Statement
at December 31, 1997
Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability
Contributed Capital Retained Earnings
Equity
$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======
Vision Enterprises
Financial Statement
at December 31, 1997
Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability
Contributed Capital Retained Earnings
Equity
$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======
Vision Enterprises
Financial Statement
at December 31, 1997
Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability
Contributed Capital Retained Earnings
Equity
$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======
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What is Accounting
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What is Accounting Accounting is the art of recording, classifying and Summarizing financial transactions in the Preparation of Financial Statements
Recording refers to creating Journal entry for every financial transaction with Debit and Credit amounts.
Classifying refers to Classifying each of the Debit / Credit Transaction to Capital or Revenue and Asset, Liability, Revenue or Expense
Summarizing refers to Grouping the Transactions of Asset, Liability, Revenue and Expenses and preparing the Financial Statements (Trading, Profit and Loss Account and Balance Sheet)
In case of
Trading, Manufacturing and Customer Service oriented Organization, the sum of all income and expenses is referred to as Profit and Loss account
Social Service oriented Organization like Schools, Hospitals and Government Organizations, Banks it is referred to as Income and Expenditure account .
Note:- Trial Balance is not a Financial Statement. It is only a summary of all Debit and Credit Transactions.
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Mode of Learning Accounting
Change your mindset that accounting means only Debit and Credit
Do not blindly learn Accounting Rules and apply the rules of Debit and Credit
The Best way to Learn Accounting is Learn the Accounting Concepts
Understand the Accounting Conventions
Classify the Accounting Event
Apply the Accounting Rules
Record, Classify and Summarize the Journal You are Confused. Am I right?
Do not become panic and move forward, you will understand
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Mode of Learning Accounting
Learn Accounting Concepts (Ten Fundamental Accounting Concepts)
Understand Accounting Conventions (Three major conventions)
Classify the Accounting Events (Capital, Revenue, Deferred Revenue Expenditure)
Apply the Accounting Rules (Personal, Real and Nominal Rules)
Record the Transaction as a Journal (Entering the Debit and Credit Side of Transaction)
Classify the Transaction (Asset, Liability, Revenue or Expense)
Summarize the Transaction (Prepare Trial Balance, Trading, P&L and Balance Sheet)
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Finance and Accounting - Difference Finance Accounts
Procurement and Utilization of
Funds
Recording of an Accounting
Event
Leads to Investment Decisions Expressed in Monetary Terms
Financing Decisions Recording , Classifying and
Summarizing Transactions
Futuristic Preparation of Financial
Statements (Trading, Profit and
loss Account and Balance
Sheet)
Cost of Capital Historical
Cash Flow / Fund Flow Compliance with Statutory
Matters like companies Act,
Income Tax Act, Sales Tax Act
Etc.,
Project Appraisal
Ratio Analysis
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Accounting Concepts/Conventions
(US GAAP/UK GAAP/IFRS/SOX) The Concepts and conventions of accounting are developed by IASC (International Accounting Standards Committee) which is in-charge of releasing International Accounting Standards (IAS)
The IASC Decides the preferred Accounting practices worldwide and encourages the worldwide acceptance
There are 41 International Accounting Standards
Now IFRS (International Financial Reporting Standards) and SOX (Sarbanes Oxley) Act gain more importance which came up from US GAAP and UK GAAP
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Difference between Concepts and Conventions
The Accounting Concepts / Principles evolved out of the
Practice and Procedures followed by different countries
and later on established by the International Statutory
Accounting Bodies like The Institute of Chartered
Accountants of India, The Institute of Chartered
Accountants of England and Wales etc to become an
Accounting Principle statutorily need to be followed
while preparing the Financial Statements. In nutshell this
has evolved out of standard Practice followed by several
countries while preparing the Trading, Profit and Loss
Account and Balance Sheet.
The Accounting Conventions / Practices are basically
assumptions and expected to be followed while
preparing the Financial Statements.
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Accounting Concepts / Principles
Business Entity Concept
Money Measurement Concept
Dual Aspect Concept
Cost Concept
Accounting Period
Conservatism
Realization Concept
Matching Concept
Materiality Concept
Objectivity