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Accounting - Coggle Diagram
Accounting
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
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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
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
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)
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