Date post: | 16-Jul-2015 |
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Business |
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Accounting
Meaning – Accounting is the process of identifying, measuring and
communicating economics information to permit informed judgments and
decisions by users of the information.
Purpose - The purpose of accounting
is to accumulate and report on financial
information about the performance,
financial position, and cash flows of a
business. This information is then used to reach decisions about how to
manage the business, or invest in it, or lend money to it.
4 April 2015 Financial Accounting 2
Accounting
4 April 2015 Financial Accounting 7
Financial Statement
Definition:-
The end product of the financial accounting process is a set of reports
that are called ‘Financial Statements’.
GAAP require that three such reports be prepared to provide
business’s financial position. They are -
1) Balance Sheet
2) Income Statement
3) Cash Flow Statement
Assets = Liabilities + Equity
4 April 2015 Financial Accounting 9
Assets = Cash + Furniture + Plant & Machinery +
Bank Balance + Trade Receivables +
Inventory
Liabilities = Bank Loan + Trade Payables +
Outstanding Expenses
Equity = Capital – Drawings + Retained Earnings +
Revenues - Expenses
Using accounting equation prepare balance sheet after the
transactions mentioned below:
1) Mr. Aman invested Rs. 50,000 cash in the Aman Services .
2) Bought furniture on credit Rs.10,000.
3) Paid office rent, Rs.16,500.
4) Paid creditor for furniture, Rs.5,000.
5) Took a Bank Loan, Rs.15,000.
6) Received payment from sales of services, Rs.12,000.
7) Paid salary to office assistant, Rs.5,000.
8) Withdrew cash for personal use, Rs. 4,500.
4 April 2015 Financial Accounting 10
1. Mr. Aman invested Rs. 50,000 cash in the Aman Services.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
4 April 2015 Financial Accounting 11
Equity
+ 50,000
0Cash
+ 50,000
Assets = Liabilities + EquityAssets = Liabilities + Equity
2. Bought furniture on credit Rs.10,000.
The accounts involve are –
a) Furniture (Assets)
b) Creditors or Trade Payables (Liabilities)
4 April 2015 Financial Accounting 12
0Creditors
+ 10,000
Furniture
+ 10,000
Assets = Liabilities + EquityAssets = Liabilities + Equity
3. Paid Office Rent, Rs.16,500.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
4 April 2015 Financial Accounting 13
Equity
- 16,500
0Cash
- 16,500
Assets = Liabilities + EquityAssets = Liabilities + Equity
4. Paid creditor for furniture, Rs.5000.
The accounts involve are –
a) Cash (Assets)
b) Creditors or Trade Payables (Liabilities)
4 April 2015 Financial Accounting 14
0Creditors
- 5000
Cash
- 5000
Assets = Liabilities + EquityAssets = Liabilities + Equity
5. Took a Bank Loan, Rs.15,000.
The accounts involve are –
a) Cash (Assets)
b) Bank Loan (Liability)
4 April 2015 Financial Accounting 15
0Bank Loan
+ 15,000
Cash
+ 15,000
Assets = Liabilities + EquityAssets = Liabilities + Equity
6. Received payment from sales of services, Rs.12,000.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
4 April 2015 Financial Accounting 16
Equity
+ 12,000
0Cash
+ 12,000
Assets = Liabilities + EquityAssets = Liabilities + Equity
7. Paid salary to office assistant, Rs.5000.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
4 April 2015 Financial Accounting 17
Equity
- 5000
0Cash
- 5,000
Assets = Liabilities + EquityAssets = Liabilities + Equity
8. Withdrew cash for personal use, Rs.4,500.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
4 April 2015 Financial Accounting 18
Equity
- 4,5000Cash
- 4,500
Assets = Liabilities + Equity
Accounting Equation
4 April 2015 Financial Accounting 19
No. Assets = Liabilities Equity
Cash Furniture = Creditors Bank Loan Equity
1. +50,000 = +50,000
2. +10,000 = +10,000
3. -16,500 = -16,500
4. -5,000 = -5,000
5. +15,000 = +15,000
6. +12,000 = +12,000
7. -5,000 = -5,000
8. -4,500 = -4,500
Total +46,000 +10,000 = +5,000 +15,000 +36,000
56,000 = 56,000