BASIC ACCOUNTING CONCEPTS
A system of recording information about a business.
Lucas Pacioli (1494)
What is Accounting?
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Activity 1: List who you think will make use of this information.
Accountant/bookkeeper…◦collects documentation ◦records this information◦categorizes it ◦presents it in specific formats
Bookkeepers - data collection & entry.
Accountants - preparing financial statements, advisory or consulting role.
Balance sheetReports company's assets, liabilities, and owners’ equity at a given point in time.
Income statement (Profit and Loss report)Reports company's income, expenses, and profits over a period of time. Statement of cash flows Reports company's cash flow activities.
3 main financial statements
OWNERS’ EQUITY = ASSETS - LIABILITIES
OR
ASSETS = OWNERS’ EQUITY + LIABILITIES
The Accounting Equation
Asset: a possession of a business that will bring the business benefits in the future. Asset Test
1. DOES A BUSINESS OWN/CONTROL IT? 2. WILL IT BRING A BUSINESS BENEFITS IN THE
FUTURE? 3. CAN YOU VALUE IT ACCURATELY?
Assets
Land Rented factory
Computer Motor vehicle
Cash
LoanDebtors
Am I an Asset???
ASSETS
Fixed(non-current) assets
Current assets
Land & buildings Equipment Vehicles
Trading stock Debtors Bank Cash float Petty cash
Liability: a debt (money owed) of the business. Results in assets (usually cash) leaving the business in the future. Examples…LoanCreditors (payables)
Liabilities
LIABILITIES
Non-current liabilities
Current liabilities
Loan Creditors Bank overdraft
Owner’s Equity: the value of the business to the owner(s) Owner’s Equity = value of all the assets –liabilities.
Owner’s Equity
OWNERS EQUITYCapital
Drawings
Income Sales Current income Rent income Commission received Interest on bank
account Donations Interest on fixed
deposit
Expenses Rent expense Salaries and wages Stationery Cost of sales Rates Insurance Water and electricity Advertising Bank charges Telephone Repairs Packing material Interest on bank
overdraft Donations Interest on loan