Financial Accounting 1st Information System PDF

Financial Accounting 1st information system - General Dr/ Nancy El-Henawy  contents 1. Accounting Definition. 2. Difference between financial and managerial accounting. 3. Accounting Equation. 4. Financial statements. 5. Recording transactions (Journal). 6. Posting in led...

Financial Accounting 1st information system - General Dr/ Nancy El-Henawy  contents 1. Accounting Definition. 2. Difference between financial and managerial accounting. 3. Accounting Equation. 4. Financial statements. 5. Recording transactions (Journal). 6. Posting in ledger. 7. Trial balance and financial statements. 8. Adjustments.  1-Accounting Definition: Accounting is a system used to record economic events and transactions and then process the data into a format that is helpful and used by different users. Accounting is considered the art of recording, classifying and summarizing in a significant manner in terms of money which is a part of financial character and interpreting the results.  Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgement and decisions by information users. Accounting is an information system that consists of three main activities (Define – Record – Communicate) the economic events of an organization to interested users.  2- Difference between financial and managerial accounting: Financial Accounting: focuses on reporting financial and economic information to external users. Managerial Accounting: measures, analysis and report financial and non-financial information, and provides internal reports to help internal users to make the decisions and fulfil organization goals.  Financial accounting Managerial accounting Users External users Internal users (creditors–banks- suppliers – (Managers) stockholders) Types of report Financial statements Internal detailed reports (Income statement- balance (Job cost sheet – budget sheet- etc.) reports- etc.) Frequency of reports Quarterly - annually Frequently when needed Purpose of report Help external users to make Assist internal users in decisions planning and controlling decisions Nature of reports Monetary Monetary and non- monetary Time focus Historical events (past orientation) Future orientation Rules of measurement Must be prepared in accordance Internal measures and and reporting with GAAP and certified by reports, don’t have to internal and external auditors follow GAAP on cost benefit analysis  3- Accounting Equation and its components: Basic accounting equation: Assets = Liabilities + Owner's Equity Expanded accounting equation: Assets = Liabilities + capital – Drawings +Revenues - Expenses  Assets: - resources owned by the business, and the business uses its assets to carry out its activities - assets is classified into: Current assets Fixed assets Assets that have useful life Assets that have useful life Less than one year and can be more than one year and can't easily transferred into cash be easily transferred into cash Ex: cash – A/R – N/R- supplies Ex: building- equipments- land – securities - prepaid expenses - goodwill – accrual revenues  Liabilities: - Claims against assets, existing debts and obligations. - liabilities is classified into: Short-term liabilities long-term liabilities Obligation and debts that should be paid within one year Obligation and debts that Ex: A/P – N/P- salaries payable should be paid on a period - accrual expenses –unearned more than one year revenues Ex: long-term loans  owner's Equity: Ownership claims to total assets or the amount of owner's investment in the business. Revenues: Gross increase in owner's equity resulting from business activities entered for the purpose of earning income. Expenses: Cost of assets consumed or services used in the process of earning revenues, and it's also the decrease in owner's equity resulting from business operations. EXERCISE (1): Below are the transactions of fabulous company: 1. Fabulous made cash investment to start the business. 2. Purchased car cash. 3. Purchased equipment on account. 4. Billed a customer for service performed. 5. Received cash from customer billed in (4). 6. Paid salaries cash. Required: analyze the effect of the previous transactions on accounts EXERCISE(2): John opens his business on May 2022, and the following transactions occurred during the first month of operation: 1.John invested 11,000 cash in the business. 2.Paid the office rent for 800 cash. 3.Purchased equipment on account for 3,000. 4.Performed a service to client for 1,500 cash. 5.Performed a service for a client on account for 5,000. 6.Paid salaries for 1,200. 7.Collected 3,000 cash from service performed in no.(5). Required: show the effect of the previous transactions on accounting equation. EXERCISE 3 Mustafa started his business and the following transactions occurred during its first month: Jan (1) Mustafa invested L.E. 30000 cash and L.E.15000 equipment in the business. Jan (5) He paid L.E.6000 cash for the furniture. Jan (6) He paid rent for L.E. 500 cash. Jan (10) purchased equipment for L.E. 2000 on credit. Jan (15) provided a service for a customer for L.E. 1500 cash. Jan (18) provided a service to a customer for L.E. 3000 on account. Jan (20) Received the amount of service provided on Jan (18). Jan (25) withdraw L.E. 2000 for personal use. Jan (25) paid monthly salaries for L.E. 500 cash. Required: Show the effect of the previous transactions on the accounting equation.