Mr Ranjit Singh Ppt

7/29/2019 Mr Ranjit Singh Ppt

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Accountingand

FinancialManagement


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Introduction to

Accounting

Accounting

& Financial

Management


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Accounting An Information Process

Users of Accounting Information GAAP

The Accounting Equation

Double Entry System

Introduction to Accounting


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is the language of business.

Accounting...


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Accounting is the information system that...

measures business activities,

processes data into reports, and

communicates results to decision makers.

Accounting

The Language of Business


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Definitions of Accounting

The process of identifying, measuring, andcommunicating economic information to permitinformed judgements and decisions by users of theinformation.

American Accounting Association (AAA)

A service activity whose function is to providequantitative information, primarily financial in nature,about economic entities that is intended to be useful inmaking economic decisions.

American Institute of Certified Public Accountants (AICPA)


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Accounting as an Aid to

Decision Making

Accounting helps in decision making by showing

where and when money has been spent, by

evaluating performance, and by showing the

implications of choosing one plan instead ofanother.

Fundamental relationships in the decision-making

process:

Event

Accountants

analysis and

recording

Financial

statementsUsers


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Identificationof Users


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UserInformation

Needs




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UserInformation

Needs

AccountingSystem



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UserInformation

Needs

AccountingSystem

Economic Dataand Activities



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Identification

of Users

UserInformation

Needs

AccountingSystem


Reports



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Identification

of Users

UserInformation

Needs

AccountingSystem

Reports


UserDecisions



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The Flow of Accounting Information

1. Business transactions

occur

3. People make decisions.

2. Businesses prepare reports to

Show the results of their operations


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Individuals

Businesses

Investors andcreditors

Governmentregulatoryagencies

Taxingauthorities

Nonprofitorganizations

Users of Accounting Information


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EXTERNAL USERS

Financial Accounting

investors

creditors

regulators

customers

competitors



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EXTERNAL USERS

Financial Accounting investors

creditors

regulators

customers competitors

owners

managers

employees

INTERNAL USERS

FinancialAccounting



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External users

make decisions

aboutthe entity.

Internalusers

make decisions

forthe entity.

Users of Accounting InformationUsers of Accounting Information


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Economic

Resources

Claims to

Economic

Resources


Assets = Liabilities + Owners Equity


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Accounting data is represented by the

following relationship among the

assets, liabilities and owners equity ofa business:

Assets = Liabilities + Owners Equity

The equation must be in balance aftereveryrecorded transaction in the

system.

The Basic Accounting Equation


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a. Sachin deposits RS 25,000 in a bank accountfor ABC Ltd

ASSETS

=

Business Transactions

OWNERS EQUITY

LIABILITIES


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a. Sachin deposits RS 25,000 in a bank accountfor ABC Ltd.

ASSETS

=


OWNERS EQUITY

Cash25,000

LIABILITIES


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a. Sachin deposits RS 25,000 in a bank accountfor ABC Ltd.

ASSETS

=


OWNERS EQUITY

Cash25,000

LIABILITIES

Sachin, Capital25,000


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b. ABC Ltd. buys land for Rs 20,000.

ASSETS

=OWNERS EQUITY

LIABILITIES


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b. ABC Ltd. buys land for Rs 20,000.

ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(20,000)


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b. ABC Ltd buys land for RS 20,000.

ASSETS

=OWNERS EQUITY

LIABILITIES

Cash(20,000)

Land20,000


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Transaction Summary

ASSETS

=OWNERS EQUITY

LIABILITIES

Cash 6,700Purchases 550Land 20,000

Accts. Payable 400

Sachin, Capital 25,000

Sachin, Drawing (2,000)Fees Earned 7,500Wages Expense (2,125)Rent Expense (800)Commission (450)Misc. Expense (275)


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Role of Accounting

Good managers plan for the future.

They develop a budget.

A budget is a formal planstated in monetary terms.


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Role of Accounting

Accounting helps banks decide

to whom they will lend money.

Accounting provides information

that helps investors pick stocks.


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Role of Accounting

ConsultingAssurance

services

includingauditing

Taxaccounting


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Generally Accepted

Accounting Principles


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Full Disclosure Principle


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Revenue Principle

Situation 2

The client has taken a trip arranged by

Air & Sea Travel. Record Revenue

Air & SeaTravel, Inc.

April 2

Air & SeaTravel, Inc.

Situation 1

No transaction has occurred.

Do Not Record Revenue

March 12I plan to have you

make my travelarrangements.


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The Double Entry System


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Double-Entry Accounting

Double-entry accounting is based on a

simple concept: each party in a businesstransaction will receive something and give

something in return. In bookkeeping terms,

what is received is a debit and what is given

is a credit. The T account is a representationof a scale or balance.

Scale or Balance

ReceiveDEBIT

GiveCREDIT

T account

Left SideReceiveDEBIT

Right SideGive

CREDITLuca PacioliDeveloper ofDouble-Entry

Accounting


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The system records the two-sided

effect of transactions

Transaction Two-sided effectBought furniture for cash Decrease in one asset

Increase in anotherasset

Took a loan in cash Increase in an asset

Increase in a liability

The Double-Entry systemThe Double Entry System


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Note that the accounting equation equality is

maintained after recordingeach transaction.

The Double Entry System


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Amit depositsRs25,000 in abank account forXYZ Ltd..


Journal

receiveDebit

giveCredit

XYZ Ltd(investee)

Amit (investor)

giveCredit

Entry A.

Date Description Debit Credit

11/1


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Amit depositsRs25,000 in abank account forXYZ Ltd..


l Journal

receiveDebit

giveCredit

XYZLtd.(investee)

Cash

Amit (investor)

giveCredit

Entry A.


11/1 Cash 25,000


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Amit deposits Rs25,000 in a bankaccount for XYZLtd..


Journal


11/1 Cash 25,000

Amit, Capital 25,000

receiveDebit

giveCredit

XYZLtd.(investee)

Cash A promiseto the owner

Amit (investor)

giveCredit

Entry A.


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XYZ Ltd. buys landfor Rs20,000.


receiveDebit

giveCredit

XYZ Ltd(buyer)

Land Owner (seller)

giveCredit

Entry B.

Journal


11/5


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Amit withdraws Rs2,000 in cash.


receiveDebit

giveCredit

XYZ Ltd.(payor)

Reduction inobligation

Amit (payee)

giveCredit

Entry H.

Cash

Journal


11/30 Amit, Drawing 2,000

Cash 2,000


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The Recording Process

The sequence of steps in recording

transactions:

Transactions Documentation Journal

Financial

Statements

Trial

BalanceLedger


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1. Transactions are analyzedand recorded in journal.

DocumentsJournal

Journal, Ledger, Trial Balance


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DocumentsJournal

2. Transactions are postedfrom journal to ledger.

Journal Ledger



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DocumentsJournal

2. Transactions are postedfrom journal to ledger.

Journal Ledger

3. Trial balance is prepared.


Trial Balance


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Manual Accounting Cycle


Documents Journal


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Documents Journal

2. Transactions are posted

from journal to ledger.Journal Ledger


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Documents Journal



3. Trial balance is prepared,

Trial balance


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Documents Journal



3. Trial balance is prepared,

4. Financial statements areprepared and distributed.

Financial Statements

IS SOE BS


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Computerized Accounting Cycle

1. Transactions are analyzedand entered in the computer.

DocumentsComputer


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DocumentsComputer

2. Preliminary reports areanalyzed, adjustments areprepared and entered in the

computer.ComputerReports Computer


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DocumentsComputer


computer.ComputerReports

3. Financial statements are

printed and distributed.

Computer


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DocumentsComputer


computer.ComputerReports

3. Financial statements are

printed and distributed.Financial Statements

IS SOE BS SCF

Computer

4. Reports are analyzed andinterpreted for decision-making purposes.

?


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Date Ref. Particulars Amount Date Ref Particulars Amount

April 2 1 To G. Cap 30,000

Debit Cash Account Credit

Insert the number of the journal page.

Posting

Recording and Posting an Entry


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L.F.


12/1 Prepaid Insurance 2,400

Cash 2,400

Journal Page 1


1. Analyze and record the transaction as shown.

2. Post the debit side of the transaction.

3. Post the credit side of the transaction.



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L.f


12/1 Prepaid Insurance 15 2,400

Cash 2,400

Journal

Ledger

Prepaid Insurance AccountDr. Cr.

Page 1


Date Particulars Fol

.

Amt. Date Particulars Fol

.

Amt.

12/1 To Cash 1 2400



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Date Description L.f. Debit Credit

12/1 Prepaid Insurance 15 2,400

Cash 11 2,400

Journal

Ledger Page No.15Prepaid insurance Account

Dr. Cr.

Page 1

13 24

Date Particulars Fol. Amt. Date Particulars Fol. Amt.

12/1 To Cash 1 2400


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TRIAL BALANCE


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Correcting Errors

Three Types of Errors

Journal Entry Ledger Posting

1. incorrect not posted2. correct incorrectly posted


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Cash

AccountsPayable

Purchase

Book

Ledger

All subsidiary bookscombinedmake up

the ledger.

Cash transactions

liability accounts

Credit purchases

Subsidiary Books


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SELLING

BUYING

Special Journals


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Rendering of services on account

SELLING

Sales Bookrecordedin

BUYING

Special Journals


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SELLING

Sales Book

Cash Book

Receipt of cash from any source

recordedin

recordedin

BUYING

Special Journals


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SELLING

Sales Book

Cash Book

Purchases Book

Receipt of cash from any source

Purchase of items on account

recordedin

recordedin

recordedin

BUYING

Special Journals

Th S l J l


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3/2 615 MyMusicClub.com 2,2003/6 616 RapZone.com 1,7503/18 617 Web Cantina 2,650

3/27 618 MyMusicClub.com 3,000Totals 9,600

Sales JournalInvoice

Date No. Particulars Details Amount

Page 35

The Sales Journal

All sales on credit are recorded in this journal. Each

sales invoice is listed in numerical order. Thisjournal is often referred to as an invoice register.


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3/3 Howard Supplies 6003/7 Donnelly Supplies 420

3/19 Donnelly Supplies 1,4503/27 Howard Supplies 960

Totals 3,430

Purchases Journal Page 11

The Purchases Journal

All purchases on account are recorded in this journal.

Date Particulars Details Amount


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Cash journals

Single column Cash Book

= Simple cash Book

Double column Cash Book

= Cash Book with bank column

Triple column Cash Book

=Cash Book with Bank & Discount Column Petty Cash Book

= Record small cash payouts


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The Financial Statements

The financial statements are a picture

of the company in financial terms.

Each financial statement relates to a specific

date or covers a particular period.

Information Reported on the Financial


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Statements

1. How well did the

company perform(or operate) during

the period?

Revenues

Direct Expenses

Gross income (Gross loss)

TradingAccount

Question Answer

Financial

Statemen

1. How well did the

company perform

(or operate) during

the period?

Gross Profit

Indirect Expenses

Net income (Net loss)

Profit and

Loss

Account



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Statements

3. What is the companysfinancial position at the

end of the period?

Assets= Liabilities

+ Owners equity

Balancesheet

Question Answer

Financial

Statement

4. How much cash did

the company generateand spend during

the period?

Operating cash flows

Investing cash flows Financing cash flows

Increase or decrease in cash

Statement

ofcash

flows


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Income Statement

The income statement,reports the companys revenues,

expenses, and net incomeor net loss for the period.

Introduction to the


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Introduction to the

Income Statement

The income statementis a financialtool that provides information about

a companys past performance.


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The Income Statement

Revenues

Expenses

= Net income(or Net loss)


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