Scribd Logo
Upload

Welcome to Scribd!

  • 42 views

    Accounting For Business

    Uploaded by

    Muhammad Afzal
    Here are the effects of the transactions on the income statement and balance sheet elements: Transaction Revenue Expenses Assets Liabilities Equity 1 NE I NE I NE 2 I NE I NE NE 3 NE NE NE I NE 4 NE I NE NE NE 5 NE NE D NE NE 6 NE NE I I NE 7 NE NE NE D NE

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Accounting For Business

    Uploaded by

    Muhammad Afzal
    42 views15 pages
    Here are the effects of the transactions on the income statement and balance sheet elements: Transaction Revenue Expenses Assets Liabilities Equity 1 NE I NE I NE 2 I NE I NE NE 3 NE NE NE I NE 4 NE I NE NE NE 5 NE NE D NE NE 6 NE NE I I NE 7 NE NE NE D NE

    Original Description:

    Business Accounting

    Original Title

    Lecture 1

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Here are the effects of the transactions on the income statement and balance sheet elements: Transaction Revenue Expenses Assets Liabilities Equity 1 NE I NE I NE 2 I NE I NE NE 3 NE NE NE I NE 4 NE I NE NE NE 5 NE NE D NE NE 6 NE NE I I NE 7 NE NE NE D NE

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    42 views15 pages

    Accounting For Business

    Uploaded by

    Muhammad Afzal
    Here are the effects of the transactions on the income statement and balance sheet elements: Transaction Revenue Expenses Assets Liabilities Equity 1 NE I NE I NE 2 I NE I NE NE 3 NE NE NE I NE 4 NE I NE NE NE 5 NE NE D NE NE 6 NE NE I I NE 7 NE NE NE D NE

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15

    Accounting for Business

    Lecture 1
    ACCOUNTING DEFINITION
    PURPOSE OF ACCOUNTING
    BASIC ACCOUNTING CONCEPTS
    Assumptions

    Business Entity: The business is separate from its owners and


    other businesses. Revenue and expense should be kept
    separate from personal expense.

    Monetary Unit: A stable currency is the unit of record.

    Periodicity: The economic activities of an enterprise can be


    divided into artificial time periods.

    Going Concern: Continuation of an entity as a going concern


    is presumed.
    BASIC ACCOUNTING CONCEPTS
    Principles

    Historical cost principle: Companies must account for and


    report the acquisition costs of assets and liabilities rather
    than their fair market value. This principle provides
    information that is reliable (removing the opportunity to
    provide subjective and potentially biased market values), but
    not very relevant. Thus there is a trend toward the use of fair
    values. Most debts and securities are now reported at market
    values.
    BASIC ACCOUNTING CONCEPTS
    Principles
    Revenue recognition principle: Companies should record revenue
    when earned but not when received. The flow of cash does not
    have any bearing on the recognition of revenue. This is the essence
    of accrual basis accounting.

    Conversely, however, losses must be recognized when their


    occurrence becomes probable, whether or not it has actually
    occurred.

    This comports with the constraint of conservatism, yet brings it


    into conflict with the constraint of consistency, in that reflecting
    revenues/gains is inconsistent with the way in which losses are
    reflected.
    BASIC ACCOUNTING CONCEPTS
    Principles
    Matching principle: Expenses have to be matched
    with revenues as long as it is reasonable to do so. Expenses
    are recognized not when the work is performed, or when a
    product is produced, but when the work or the product
    actually makes its contribution to revenue. Only if no
    connection with revenue can be established, cost may be
    charged as expenses to the current period (e.g. office salaries
    and other administrative expenses).
    BASIC ACCOUNTING CONCEPTS
    Principles
    Full disclosure principle: The amount and kinds of
    information disclosed should be decided based on
    trade-off analysis as a larger amount of information
    costs more to prepare and use. Information
    disclosed should be enough to make a judgment
    while keeping costs reasonable. Information is
    presented in the main body of financial statements,
    in the notes or as supplementary information
    BASIC ACCOUNTING CONCEPTS
    Principles
    The objectivity principle is the concept that the financial
    statements of an organization be based on solid
    evidence
    Materiality Concept - Financial statement items are material if
    they could influence the economic decisions of users. The concept
    of materiality is relative in size and importance.
    Consistency principle: It means that the company uses the same
    accounting principles and methods from period to period.
    Cost Constraint: The benefits of reporting financial information
    should justify and be greater than the costs imposed on supplying
    it.
    BASIC ACCOUNTING CONCEPTS
    Assumptions

    Business Entity: The business is separate from its owners and


    other businesses. Revenue and expense should be kept
    separate from personal expense.

    Monetary Unit: A stable currency is the unit of record.

    Periodicity: The economic activities of an enterprise can be


    divided into artificial time periods.

    Going Concern: Continuation of an entity as a going concern


    is presumed.
    ACCOUNTING EQUATION
    Practice Exercise 1
    1. Made a cash investment to start the business
    2. Paid monthly rent from cash
    3. Purchased equipment on account
    4. Billed customer for service
    5. Withdrew cash for personal use
    6. Received cash from customers billed in 4
    7. Incurred advertisement expense on account
    8. Purchased additional equipment for cash
    9. Received cash from customer when service was performed
    Practice Exercise 1
    Practice Exercise 2
    A number of transactions of Claypool Construction are described below in terms of
    accounts debited and credited:
    1. Debit Wages Expense; credit Wages Payable.
    2. Debit Accounts Receivable; credit Construction Revenue.
    3. Debit Office Supplies; credit Accounts Payable.
    4. Debit Repairs Expense; credit Cash.
    5. Debit Cash; credit Accounts Receivable.
    6. Debit Tools and Equipment; credit Cash and Notes Payable.
    7. Debit Accounts Payable; credit Cash.
    Indicate the effects of each transaction upon the elements of the income statement and
    the balance
    sheet. Use the code letters I for increase, D for decrease, and NE for no effect. Organize
    your answer in tabular form using the column headings shown below. The answer for
    transaction
    1 is provided as an example.
    Practice Exercise 3

    You might also like