Accounting
Terminologies
Accounting
• Accounting is an information and measurement system that identifies,
records, and communicates an organization’s business activities.
• Three branches of Accounting
• Financial Accounting
• Cost Accounting
• Management Accounting
Concepts
• Assets
• Operating Assets
• Non-current Assets (Long term Assets, Fixed Assets)
• Property, Plant and Equipment
• Capital work-in-progress
• Goodwill
• Other intangible assets
• Financial Assets
• Investments
• Loans
• Trade receivable ( Accounts Receivable) and Notes receivable
• Supplies ( asset and/or expense)
• Current Assets
• Cash and Cash equivalents
• Inventories
• Trade Receivables / Debtors
Concepts
• Liabilities
• Equity Shares
• Authorized, Issued, Subscribed, Paid up Capital
• Preference Shares
• Debentures
• Other Equity (Retained Earnings/ Reserves)
• Current Liabilities
• Borrowings Short Terms Loans
• Trade payables
• Bank overdraft
Concepts
• Depreciation
• Straight Line Method & Written Down Value Method
• Amortization
• Interest and Dividend
• Capital Expenditure (CAPEX)
• Revenue Expenditure (OPEX)
• Capital Receipts and Revenue Receipts
• Unearned Revenue-In advance
Terminologies
• Accrued expenses are payments that a company is obligated to pay
in the future for goods and services that were already Received. Put
simply, a company receives a good or service and incurs an expense.
This expense is recorded on the books but is paid later.
• Salaries payable, interest payable, etc.
• Deferred expense is the expense the company has
already paid for in one accounting year. Still, the
benefits for such expenses have not been consumed in
the same accounting period, and it is to be shown on
the asset side of the company’s balance sheet.
• Prepaid expense
Terminologies
• Unearned revenue (Income received in advance) is the
income received by an individual or an organization for
a product or service that is yet to be delivered. It is
documented as a liability on the balance sheet as it
represents a debt or outstanding balance that is owed
to the customer. It is also referred to as deferred
revenue or even advance payment.
• Accrued revenue refers to a situation where the goods
or services have been delivered to the client but the
payment for the same has not been received. (Interest
earned but not received )
Accounting Principles
• Measurement Principle (Cost Principle)
• Revenue Recognition Principle
• Expense Recognition Principle (Matching Principle)
• Full Disclosure Principle
Accounting Assumption
• Going Concern Assumption
• Monetary Unit Assumption
• Time Period Assumption
• Business Entity Assumption
Accounting System
• Identifying Transactions
• Recording the Transactions
• Passing Journal Entries
• Posting in Ledger
• Preparing Trial balance
• Preparing Final Accounts
• Communicating
Accounting system
• Double Entry Book System
• At least two accounts are involved, with at least one debit and one credit
• Total amount to be debited must equal to total amount credited
Asset Account and Liabilities
Accounts
• Normal balance
• Assets : Debit
• Liabilities: Credit
Traditional Methods Thumb Rules
• Personal Account – Debit the receiver
Credit the giver
• Real Account- Whatever comes in- Debit
Whatever goes out- Credit
• Nominal Account – Expenses and losses - debit
Income and gains - Credit
Modern Method Thumb Rules
• Increase in Asset – Debit
• Decrease in Asset- Credit
• Increase in Liabilities- Credit
• Decrease in Liabilities – Debit
Exercise
1. Promoter invested Rs. 30,000 cash in a company.
2. Company pays Rs. 2500 for supplies
3. Company pays Rs. 26,000 for buying equipment.
4. supplies on credit from XYZ Ltd. Rs. 7,100.
5. Company provides consultancy services and immediately receives Rs. 4,200.
6. Company pays Rs. 1000 rent for the month of December.
7. Salaries paid Rs. 700.
8. Company provides consultancy services of Rs. 1,900. The customer is billed Rs. 1900 for these
services.
9. Company receives Rs. 1,900 cash from the customer billed in T-8.
10. The company pays XYZ limited Rs. 900.
11. Company pays Rs. 200 dividend.
12. Company receives Rs. 3,000 cash in advance for providing consultancy services to a customer.
13. Company pays Rs. 2400 insurance premium for the next 12 months.
Characteristics of Financial
Statements
• Recorded facts
• Accounting principles
• Assumptions
• Personal judgments
• Understandability
• Relevance
• Reliability
• Comparability
Exercise
1. Neva invested Rs. 90,000 cash and equipment valued at Rs. 10,000 in the company.
2. The company purchased a building for Rs. 50,000 cash.
3. The company purchased equipment for Rs. 25,000.
4. The company purchased Rs. 1,200 supplies and Rs 1,700 equipment on credit.
5. The company paid Rs. 7,50 cash for advertising expenses.
6. The company completed financial plan for a client and billed that client Rs. 2,800 on
credit.
7. The designed financial plan for another client and immediately collected Rs. 4,000 cash.
8. The company paid dividend Rs. 11,500.
9. The company received Rs. 1,800 cash from the client mentioned in transaction 6.
10. The company made a payment of Rs. 700 cash on the equipment purchased on
transaction 4.
11. The company paid wages Rs. 2,500.
Thank you
