Business Accounting

buainess accounting
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  Chp 1 I. Defenition of Accounting  is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of informati. II. Users Of Accounting Information: a. Management :  A project manager needs the accounting information of a project to estimate the profit or loss of the project. b. Investors :  An investor wants to know whether the company is profitable to determine the risk of their investment c.   Creditors :  Creditors need a company's financial information to minimise their business risks. The bank wants to collect its loans back.d. Directors :  The directors are the representatives of the shareholders of a company.e. Employees : In cases where employees are on a profit sharing arrangement, accounting records would be the basis for such calculations. f. Government Departments : arious government departments use the accounting information generated to e!ercise statutory control and ensure conformity with laws. Chp 2 III. Accounting Euation : a!Assets : imply stated, assets are those things of value that your company owns. !#ia ilities : is the loan you took from your bank. If you were a bank, your customer's deposits would be a liability, since they represent future claims against the bank. c!O$ner%s Euity : represent the claims of owners against the business. I. &$o types of Assets :  a. Current Assets : assets that are in the form of cash or will generally be converted to cash or used up within one year.b. 'i(ed Assets : assets that are generally not converted to cash within one year. #!amples are e$uipment and vehicles. . Identfy #ia ility : imply stated, assets are those things of value that your company owns, assets are the objects, rights and claims owned by and having value for the firm. t$o types of lia ility : a. Current Liabilities :  refer to amounts owed for goods and services purchased on credit terms. b. Long-term liabilities : liabilities that are not due within one year. I. Differentiate De it and Credit : a. De it : money removed from an accountb. )redit : deposited Chp * II. Accrual concepts and prudence concepts : a.Accruals Concept : When preparing the profit and loss account, revenue and profits are matched with the associated costs and expenses incurred in earning them b. prudence concepts : This states that a business should not recognize revenues and gains until they are reasonably certain of being realized, and should not overstate assets,  but all expected expenses, losses and liabilities should be provided for as soon as they are anticipated. Chp + III. ,oo--eeping : is the process of recording business transactions accurately and systematically in accordance with certain principles or rules. I%. $hy Good ,oo--eeping is important : &ecause if you are going to run a successful business, accurate and timely financial information is a must. Chp .  %. /i( types of trial alance error : a.Error of Omission : This occurs when a transaction has been completely omitted from the ledger accounts. ! Error of Commission :  This occurs where one half of a transaction has been entered in the wrong account, but where the error does not affect the view given by the final accounts. c.Error of Principle : This is similar to an error of commission, but the error affects the view given by the final accounts d.Compensating Errors :   These occur where there are two errors which offset one another. e.Error of Original Entry : This occurs where the wrong figure has been used for the entire transaction, so both debit and credit entries are wrong. f.Reersal of entries : This occurs where the entries for a transaction are reversed – the account which should be debited is credited and vice versa. %I. !rial alance : is a list of all of your accounts and their ending balances at a given time. This should usually be prepared at the end of each month, but it can be done at any time. %II. Differentiate 0posting1 and 0footing1 : a. osting   :  is the process of entering in the ledger the information given in the journal.  b. 'ooting :   to total the amounts in a column, such as a column in a journal or ledger. Chp 3 %III. Correction if the transaction is totally omitted from the oo-s : e should simply cross out the error and not delete by using type(! error in order to know that this is someone fi!es the error.%I. erform a dou le entry in a given scenario : )or every transaction that is recorded in a business, there have to be two components that make up an entry*a debit and a credit. /cenario : +ebit  A debit is an increase in an asset item- a decrease in a claim or e!pense item. Credit  A credit is an increase in a claim item- a decrease in asset or revenue item. Chp 4 %. e#plain methods $hich are used to calculate depreciation : a. Realuation %ethod : This method is normally used for calculating depreciation of loose tools, farmers' livestoc where it is difficult to estimate with any certainty the rate at which the asset will depreciate. b. &traight line or 'i#ed (nstallment %ethod ! y this method, the fixed asset is assumed to depreciate at e#ual amounts for every year of its expected lifetime.  c. Reducing alance or )iminishing alance %ethod : y this method the asset is supposed to depreciate at a fixed $ of its depreciated value at the beginning of each year. Chp * %I. outstanding lia ilities   #!penses which are incurred in the current period, whether paid or not, should be charged against the current period/s revenue Chp 5 %II. ,ad de ts   regarded as an e!pense in earning the revenue of that accounting period and must be debited to the 0rofit and 1oss Account on &alance +ay. Chp 67 %III. 'inancial statements : necessary sources of information about companies for a wide variety of users.%I%. &he ,alance /heet :  a statement detailing what a company owns 2assets3 and claims against the company 2liabilities and owners' e$uity3 on a particular date. %%. Income /tatement :  The Trading Account and the Income tatement brings together the revenues earned and e!penses used up in earning that revenue. %%I. Dou le Entry accounting : A//E&/ #IA,I#I&IE/8O9E;%/ E<UI&=  +#&IT > C4#+IT %ncreases in &ssets ecreases in &ssets ecreases in (laims %ncreases in (laims #!pense Items 4evenue Items
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