INTRODUCTION-OF-ACCOUNTING-2.pdf

Fundamentals of Accountancy Business & Management 2 Teacher : mary charlene Junsay,mba Introduction to Accounting 2 Objectives Introduce Accounting 2 to the learners. To determine the significance of accounting To Identify the Main Steps in the traditional Accounti...

Fundamentals of Accountancy Business & Management 2 Teacher : mary charlene Junsay,mba Introduction to Accounting 2 Objectives Introduce Accounting 2 to the learners. To determine the significance of accounting To Identify the Main Steps in the traditional Accounting Cyvle Accounting is a system that identifies, records, communicates information that is relevant, reliable & comparable about an organization’s business activities. Why do we need to study Accounting? So that we can accumulate & report financial information about the performance, financial position & the cash flows of a business. This information is then used to reach decisions about how to manage the business or invest it or lend money to it Why accounting is so important? Accounting plays a very important role in running a business & helps you track income & expenditures. Also, it gives us a financial information which can be used in making business decisions. Accounting vs. Bookkeeping Basics of Accounting  Revenues  Expenses  Assets  Liabilities  Income Statement  Balance Sheet  Cash Flows Accounting Cycle The Accounting Cycle is a set of steps that are repeated in the same order every period. The culmination of these steps is the preparation of Financial Statements. 9 Main Steps in the Traditional Accounting Cycle:  Identify business events, analyze these transactions & record them as Journal Entries.  Post journal entries to applicable T-Accounts or Ledger Accounts  Prepare Unadjusted Trial Balance from the General Ledger.  Analyzethe Trial Balance & make end of period Adjusting Journal Entries. 9 Main Steps in the Traditional Accounting Cycle:  Post Adjusting Journal Entries & prepare the Adjusted Trial Balance.  Use the Adjusted Trial Balance to prepare Financial Statements.  Close all temporary Income Statements accounts with Closing Entries.  Prepare the Post - Closing Trial Balance for the next accounting period.  Prepare Reversing Entries to cancel temporary adjusting entries if applicable Basics of Accounting Revenue - is the amount a company receives from selling goods and/or providing services to its customers and clients. Expense - is the money spent, or costs incurred, by a business in their effort to generate revenues. It represents the cost of doing a business. Basics of Accounting  Asset - any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset.  Liabilities – these are amounts owed to creditors for a past transaction and they usually have the word "payable" in their account title. Liabilities include loans, A/P, mortgages, deferred revenues and etc.  Income Statement – is one of a company’s core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities.  Balance Sheet - is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation or private limited company.  Cash Flow - is the net amount of cash and cash- equivalents being transferred into and out of a business As you can see, the cycle keeps revolving every period. Note that some steps are repeated more than once during a period. Obviously, business transactions occur and numerous journal entries are recording during one period. Only one set of financial statements is prepared however.