Accounting

2) Double Entry System
-definition -double entry system show an increase and decrease in each item of the accounting equation by accounts
-all accounts can be found in the general ledger

  • a listing of all the accounts is called chart of accounts
    rules
    -Assets and expense ( when increase - debit ), (when decrease - credit)
  • Liabilities, shareholders' equity and revenue (when increase - credit), (when decrease - debit)

Accounting period concept

  • life span of business broken into regular intervals
    -financial statements are prepared at end of each accounting period
    going concern concept
    -assume business continue to operate for a long time
    -assets valued at historical cost and not at disposal value

the five steps transaction analysis
1) accounts affected, 2) category, 3) + , - 4) rules of debit and credit, 5) amount

General Journal - the total amount of debits must always equal the total amount of credits

  • each transaction must affect at least two different accounts

pre-closing trail balance
-list of the ending balances of all the accounts in the general ledger

  • total debits should equal total credits

3) Statement of profit or loss
-income statement
-results of operations
-revenue and expense


Statement of financial position
-balance sheet
-assets, liabilities and shareholders' equity

3) temporary accounts
-revenue, contra revenue and expenses
(retained earnings, profit or loss)


permanent accounts
-cash, inventory, ordinary share capital, equipment, account payable
(post-closing trail balance)

What is accounting?

1) Definition: Accounting is a process of analysing, recording, summarizing, reporting and interpreting financial information of a business

business organisation

1) Sole proprietorship (only one owner - this owner will make all decisions for the business and bear all the risks and consequences

2) Partnership ( at least two owners - share the decision making and risks of the business)

3) Company ( owned by shareholders- "limited attachment to name of company"

types of services

1) service- actual services provided for clients eg. medical services

2) Trading- buy products at low price and sell at a higher price

3) Manufacturing- companies that make their own products

Accounting equation : Assets = liabilities + owner's equity

-Assets are properties of value owned by a business for example, cash, furniture, office equipment and other properties of values

-Liabilities are debts owed by businesses to outside parties such as bank loan and accounts payable

Owner's equity are the owner's claim on net assets of business . Owners of a company are called shareholders and the company issue shares in return for investing cash

accounting entity concept : owner and business considered as separate business entity which means owners personal transactions are kept separate and only business transactions are recorded

terms in accounting equation

  • "on credit" means to buy and pay later. A liability is created when we buy on credit
  • When inventory is purchased and later return to the seller, possible reasons could be that the inventory purchased was damaged or wrong specification/colour

monetary concept - only record transactions that can be measured in monetary terms, non-monetary transactions are not recorded such as customer loyalty and quality of workplace

historical cost concept
-record transactions for atctual amount paid and the amount paid will not be adjusted even in the case of inflation or market changes

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