Financial accounting basics free download

Accounting is also a profession consisting of individuals having the formal education to carry out these tasks. Accounting consist of 3 basics activity Identifies Records Communicates The building boxes of accounting Effective financial reporting depends on sound ethical behavior.

To sensitize you to ethical situation in business and to give you practice at solving ethical dilemmas, we address ethics in a number of ways in this book: Ethics in Financial Reporting A number of the Feature Stories discuss the central importance of ethical behavior to financial reporting Ethics insight boxes and marginal Ethics Notes highlight ethics situations and issues in actual business settings Many of the People, Planet, and Profit Insight boxes focus on ethical issues that companies face in measuring and reporting social and environmental issues Ethics case simulates a business situation and asks you to put yourself in the position of a decision-maker in that case.

Let s look at some sample transactions to get a better understanding of how the analysis and equation work. A transaction that decreases total assets must also decrease total liabilities or equity.

A transaction that increases total assets must also increase total liabilities or equity. Some transactions may increase one account and decrease another on the same side of the equation i. Analyze each transaction for its effects on the accounts. Enter the transaction information in a journal. Transfer the journal information to appropriate accounts in ledger. Debit Credit Jan. The debit account title is entered first.

The credit account title is indented and entered on next line. A brief explanation of transaction appears on the line below the credit account title. The column titled Reference is left blank when the journal entry is made.

Debit Credit Balance Jan. Accrued Revenue note receivable interest. Prepaid Expense 2. Supplies Expense Prepaid Expense 3. Unearned Revenue Supplies Expense Supplies. Accrued Revenue 5. Depreciation Expense Accumulated Depreciation Equipment 7. The Ledger of Villa Rental Agency on March 31 of the current year includes the selected accounts, shown below, before adjusting entries have been prepared.

Analysis of the accounts shows the following. One-third of the unearned rent revenue was recognized during the quarter. This have the fixed pattern as follow Worksheet Name of company Worksheet For the The trial balance of Midas Company at December 31, the end of the company s fiscal year is shown on the work sheet: Adjustment data: 1.

Instructions: 1. Complete the worksheet. Prepare a multiple-step income statement, a retained earnings statement and state of financial position at December Journalize the closing entries. Instructions: 3. Example Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system.

Internal Control o Methods and measures adopted to: Safeguard assets. Enhance accuracy and reliability of accounting records. Increase efficiency of operations. Ensure compliance with laws and regulations. The general journal entry to record the check is: Mar. NSF not sufficient funds. Credit Memorandum Collect notes receivable.

Interest earned Bank Statements. Step 1. Deposits in transit: April 30 deposit received by bank on May 1. Outstanding checks: No. Errors: Laird wrote check no. However, Laird recorded the check as 1, Step 4. Bank memoranda: a. Debit NSF check from J. Baron for b. Debit Charge for printing company checks c. Credit Collection of note receivable for 1, plus interest earned 50, less bank collection fee , Cash balance per bank statement 15, Add: Deposit in transit 2, Less: Outstanding checks 5, The common characteristic possessed by all.

Define fraud and internal control. Identify the principles of internal control activities. Explain the applications of internal. Profit is the difference between:. The Accounting Equation The basic accounting equation is what. What are its main functions? Accounting is the process of financially measuring, recording, summarizing and communicating. Complete the information requested on the answer sheet. PRINT your name on the. While it does cover many important. A business organized as a corporation a.

Chapter 1 Accounting in action What is Accounting Accounting is the financial information system that consists of three basic activities-it identifies, records, and communicates the economic events of.

A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is. Nature of Business and Accounting A business. Study carefully the revenue recognition principle, the expense recognition principle, and the time period assumption.

When goods are returned, purchaser reduces Inventory. Recap from Week 3 The Measurement of the Business Income The primary objective of accounting is measuring the net income of the businesses according to the generally accepted accounting principles. The computation of cost of goods.

Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users creditors, investors, suppliers, etc. A company received cash and issued common stock. What was the effect on the accounting equation? Assets Liabilities Stockholders Equity A. Standard accounting procedures are based on the double-entry system.

This means that each. Identify the principles. Debtor : The sum total or aggregate of the amounts which the customer owe to the business forpurchasing goods on credit or services rendered or in respect of other contractual obligations, isknown as Sundry Debtors or Trade Debtors, or Trade Payable, or Book-Debts or Debtors.

In otherwords, Debtors are those persons from whom a business has to recover money on account of goodssold or service rendered on credit. Creditors are generally classified as Current Liabilities. Capital Expenditure : This represents expenditure incurred for the purpose of acquiring a fixed assetwhich is intended to be used over long term for earning profits there from. At times expenditure may be incurred forenhancing the production capacity of the machine.

This also will be a capital expenditure. Capitalexpenditure forms part of the Balance Sheet. Revenue expenditure : This represents expenditure incurred to earn revenue of the current period. The benefits of revenue expenses get exhausted in the year of the incurrence. The revenue expenditure results in reduction in profit orsurplus.

It forms part of the Income statement. Business usually prepares 3 reports. A statement of financial position referred to as balance sheet 2. Income statement 3. Statement of cash flows. In this module, we can just concentrate on the income statement and Balance sheet. Balance Sheet : It is the statement of financial position of the business entity on a particular date. It lists all assets, liabilities and capital.

It is important to note that this statement exhibits the state ofaffairs of the business as on a particular date only. It describes what the business owns and whatthe business owes to outsiders this denotes liabilities and to the owners this denotes capital.

Profit and Loss Account or Income Statement : This account shows the revenue earned by thebusiness and the expenses incurred by the business to earn that revenue. This is prepared usuallyfor a particular accounting period, which could be a month, quarter, a half year or a year. The netresult of the Profit and Loss Account will show profit earned or loss suffered by the business entity.

A lot of events affect the business, like receiving cash from customers, making payment to suppliers, tax payments, buying and selling on credit etc. Therefore, to have identical understanding of transactions, Accounting adopts the following four major measurement assumptions: a. Reporting Entity: The primary assumption here is that the Firm is different from its owners and other firms. It has an existence of its own. Owners might come and go. But the organisation exists. Therefore, the financial statement of the firm shall show the financial position of the firm alone and does not include the financial transaction of any other individual or entity.

Reporting entity is also defined by the purpose and the context of financial reporting. For e. A company might have different subsidiary or group companies; Some businesses might want to reports based on segment of business like based on type of products or Geographical segment etc.

This assumption is extremely important to understand, as the businesses go through difficult and successful periods of time. However, they will be able to meet their commitments to the stakeholders in spite of seemingly difficult position. Usually cost commitments, the assets that the firm owns and the ability of the organisation to generate revenue in the foreseeable future will determine if it is a going concern or not. Periodicity: As we assume that the organisations continue to exist under the going concern assumption, the stake holders of the firm may want to find out the results of the operation every now and then.

To satisfy this condition, firms have to report to its stake holders, on their financial performance and financial position based on an artificial time period.

This is usually a year. However, the current practices also make it mandatory to report once a quarter. Money measurement: Under this assumption, financial transactions are recorded and Financial statements are always expressed in terms of money for the ease of understanding. If a transaction or activity cannot be measured in terms of money, such things cannot find a place in the accounting records.

However, the type of unit of money i. The important assumption here is that money is a stable measure in the same way as Kg is a stable measure for weight. Employees are residual claimants of the profits of the business, i. Who among the following would be interested in a company's financial information for the sake of resource allocation, formulation of taxation policies and investigation of corporate crimes? What does the accounting assumption 'reporting entity' mean?

What does the accounting assumption 'historical cost' mean? The concept of double entry system b. The content of a Balance Sheet c. The Accounting equation d. The effect of a transaction on the accounting equation Double Entry System: Double entry is a simple yet powerful concept each and every one of a company's transactions will result in an amount recorded into at least two of the accounts in the accounting system.

Every transaction has two fold aspects, i. Then at the end of the year, try to track what the business has earned or what the business has lost to be given to its owner John or the investor.

The first transaction that John will record for his company is his personal investment of Rs. The two accounts involved are Cash and Vehicles or Delivery Equipment. On December 2 when John contacts an insurance agent regarding insurance coverage for the vehicle quick Parcel just purchased. The agent informs him that Rs.

John immediately writes a cheque for Rs. Prepaid Insurance an asset account reported on the balance sheet and Insurance Expense an expense account reported on the income statement. On December 3,a customer gives Quick Parcel a cheque for Rs. On December 3 the company gets its second customer-a local company that needs to have 50 parcels delivered immediately. John's price of Rs. The only expense incurred by Direct Delivery so far was a fee to a temporary help agency for a person to help Joe deliver parcels on December 3.

The temp agency fee is Rs. In accounting jargon, you debit the asset account. To decrease an asset account balance you credit the account, that is, you enter the amount on the right side. Just as liabilities and stockholders' equity are on the right side or credit side of the accounting equation,to increase the balance in a liability or stockholders' equity account, you put more on the right side of the account.

In accounting jargon, you credit the liability or the equity account. To decrease a liability or equity, you debit the account, that is, you enter the amount on the left side of the account. Transaction No. Both of these accounts are balance sheet accounts. There are no revenues because no delivery fees were earned by the company, and there were no expenses.

On December 2 John contacts an insurance agent regarding insurance coverage for the vehicle Quick Parcel just purchased. On December 3, a customer gives Quick Parcel a cheque for Rs. The only expense incurred by Direct Delivery so far was a fee to a temporary help agency for a person to help John deliver parcels on December 3. Since the Rs. At the end of each month, when Rs. Which among the following do not qualify as assets?

What are the accounts affected by 'Received payment for goods supplied'? Cash, inventories, buildings, machines, etc. The meaning of Income and Expenses in an Income Statement b. The difference between profit and cash c. Preparation of an Income Statement d. The relationship between Balance sheet and Income Statement Income Statement: Income statement will show how profitable a business has been during the time interval.

The reporting of profitability involves two things: the amount that was earned revenues and the expenses necessary to earn the revenues.

The revenues are recorded when they are earned, not when the company receives the money accrual basis of accounting. Recording revenues when they are earned is the result of one of the basic accounting principles known as the revenue recognition principle. For example, if John delivers 1, parcels in December for Rs.