Transcript Introduction to Accounting

Introduction to Accounting
Book keeping
Accounting
 This is a process of detailed
 This uses the bookkeeping
recording of all the financial
transaction of a business.
 Each financial event or
business activity is called a
transaction
records to prepare the
financial statements at the
regular intervals.
Learning objective
 Accounting literacy
 Financial literacy
 Business literacy
The three aspect of Accounting
MOVEMENT
STRUCTURE
LANGUAGE
Ledgers, Income
statement and
balance sheet
Terminology ie
assets , liability,
income
Increase or
decrease and
debit &
credit
The five absolute elements in
accounts
 Assets
 Liabilities
 Expenses
 Owner/capital
 Income
Definition of terms
 Assets: are resources that are
owned by a business and uses
them to run the business to
produce, sell goods and services
eg Machinery Motor vehicles ,
cash etc
 Expenses: These are day to
day running costs incurred by
a business in the process of
earning revenue eg rent,
wages, salaries, interest, costs
of heat etc
 Liabilities : these are amounts
that the business owes to other
people eg amount owed to
suppliers, loan , bank overdraft
etc
 Capital : This represent
resources invested in the
business by the owner or money
used to start up the business by
the owner.
 Income / Revenue: These are
the amounts the business earns
by selling its products or
providing services to
customers. eg sales, fees,
commission, interest, rent
received, etc.
The Butterfly concept
Green
Yellow
 The earth consumption of
 The sun, the source of energy
energy
The accounting duality/butterfly.
Green
yellow
 Use of funding
 Source of funding
3.Assets
2.Liabilities
5.Expenses
1.Owner/equity/capital
4.Income
Accounting duality continues
Green
 Use of funds
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Room 3. Assets
Premises
Machinery
Motor vehicle
Equipment
Stock
Fixtures and fittings
Room 5. Expenses
Wages and salaries
Insurances
Rent
electricity
Yellow
 Source of funds
 Room 2. Liabilities
 Creditors
 Loan
 Room 1. Capital /Equity
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Room 4. Income
Sales
Rent received
Commission received
Conclusions
 It is a Trial balance
 Green debit, yellow credit
 Room 1,2,3 is the accounting equation which states
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that: ASSETS= CAPITAL + LIABILITY
Therefore room 1,2,3 is a balance sheet
Room 4,5 is an income statement.
Rooms 1,2 and 4 credit increase and debit decrease
Rooms 3,5 credit decrease and debit increase
Terminology: Debits & Credits
Green use of funds
Yellow: Source of funds
 Debit
 Credit
 Debit the account increases
 Credit the account decrease
 Credit the account increase
 Debit the account decrease