Language of business

ACCOUNTINGBASICS OF THE “LANGUAGE OF

BUSINESS”

DEFINITIONIt is a systematic process of identifying, recording, measuring, classifying,

verifying, summarizing, interpreting and communicating financial information.

WHY ACCOUNTING• Systematic record of business transactions.

• Protecting the property of the business.

• Communicating results to the interested parties.

• Compliance with legal requirements.

BASIC ACCOUNTING TERMINOLOGYCapital (Equity) – The amount which the proprietor has invested in the firm or can claim from the firm.

For the firm it is a liability towards the owner.

Liability – The amount that is due to be paid to any person or institution other than owner.

Long-term liabilities – payable after a long term (generally more than a year). E.g.: Long-term loans, etc.

Current liabilities – payable in near future (generally within one year). E.g.: Bank overdrafts, bills payable, etc.

BASIC ACCOUNTING TERMINOLOGYAssets – Things that are resources owned by a company and which have future economic value that can be measured and can be expressed monetarily.

Current assets – cash and other assets that are expected to be converted to cash within a year.

Cash, marketable securities, short-term investments, etc.

Non-current (Fixed) assets – Asset that is not likely to turn to unrestricted cash within one year of the balance sheet date.

Tangible (Land, Building, Equipment, etc.); Intangible (Software, Licensing agreements, etc.)

BASIC ACCOUNTING TERMINOLOGY• Revenue – Income for period.

• Loss – Excess of Expenses over Revenue.

• Profit – Excess of Revenue over Expenses.

• Expenses – Costs of running the business during the same period.

ACCOUNTING METHODS• Cash Basis - method of recording accounting transactions for revenue

and expenses only when the corresponding cash is received or payments are made. Cash method is not acceptable under generally accepted accounting principles or international financial reporting standards.

• Accrual Basis - method of recording accounting transactions for revenue when earned and expenses when incurred. A key advantage of the accrual basis is that it matches revenues with related expenses, so that the complete impact of a business transaction can be seen within a single reporting period.

FINANCIAL STATEMENTS• Statement of Financial Position (Balance Sheet) - list of all the assets owned and all the

liabilities owed by a business as at a particular date. The format of the statement of financial position follows the basic accounting equation, which states that:

Assets = Liabilities + Equity

• Statement of Profit or Loss (Income Statement) - record of revenue generated and expenditure incurred over a given period. The statement shows whether the business has had more revenue than expenditure (a profit) or vice versa (loss).

• Statement of Changes in Equity - reconciliation of the beginning and ending balances in a company’s equity during a reporting period.

• Statement of Cash Flows – describes the cash flows into and out of the business. Focuses on such types of activities as operations, investments and financing, which use and create cash. It is especially useful when there is a divergence between the amount of profits reported and the amount of net cash flow generated by operations.

DOUBLE ENTRY• The double-entry book-keeping system is based on the principle that

for every business transaction that takes place two entries must be made in the accounts: a debit entry, showing goods or value coming into the business, & a corresponding credit entry, showing goods or value going out of the business.

DOUBLE ENTRY

Debit1. Increase in asset accounts2. Increase in expense accounts 3. Decrease in liability accounts4. Decrease in equity accounts5. Decrease in revenue accounts

Credit1. Decrease in asset accounts2. Decrease in expense accounts 3. Increase in liability accounts4. Increase in equity accounts5. Increase in revenue accounts

DOUBLE ENTRY in terms of Banks• Cash transactions• Withdraw• Deposit• Exchange


Dr – Customer accountCr – Cash


Dr – CashCr – Customer account


Dr – Cash AZNCr – Cash USDCr – PL (profit – difference between transaction rate and CB rate)

DOUBLE ENTRY in terms of Banks• Fund Transfer

Dr – Customer account (Sender)Cr – Customer account (Beneficiary)Cr – PL (commission income)

DOUBLE ENTRY in terms of Banks• Loans to customers• Disbursement• Interest accrual• Repayment• Loans from Financial Institutions• Disbursement• Interest payable• Repayment


Dr – Loan owed by customerCr – Customer account


Dr – Interest accrual (assets)Cr – PL (interest income)


Dr – Customer accountCr – Loan owed to customerCr – Interest accrual (receiveble)

DOUBLE ENTRY in terms of Banks• Loans to customers• Disbursement• Interest accrual• Repayment• Loans from Financial Institutions• Disbursement• Interest Payable• Repayment

Dr – Correspondent account Cr – Loan due to FI


Dr – PL (Interest expense)Cr – Interest payable (liabilities)


Dr – Loan due to FIDr – Interest payable (liabilities)Cr – Correspondent account

Thanks for your attention!!!

Language of business

Economy & Finance

Transcript of Language of business