Module 1.pdf

AIBS Amity International Business School Accounting Fundamentals ACCT 102 1  Accounting??? AIBS Accounting is the process of systematically – recording, –...

AIBS Amity International Business School Accounting Fundamentals ACCT 102 1  Accounting??? AIBS Accounting is the process of systematically – recording, – measuring, – and communicating information about financial transactions. Example: Individual running the stationery business, would need to record all business transactions  Accounting: Objectives AIBS Objectives of Accounting Systematic Communicating Ascertainment of Ascertainment of Recording of Information to Results Financial Position Transactions various users Book-keeping: Manufacturing, Journal, Ledger & Trading, Balance Sheet Financial Reports Trial Balance P & L account  Accounting: Functions AIBS Measures past performance of the business Provides relevant information to the users Comparison & Evaluation of financial results Provides relevant information for decision making Provides necessary information for collection of tax revenues by government Accounting VS Book Keeping AIBS Accounting VS Book Keeping AIBS  Various Branches of Accounting AIBS Financial Accounting Management Accounting Cost Accounting Social Responsibility Accounting Human Resource Accounting Accounting??? AIBS Accounting??? AIBS  Accounting: Recording AIBS Any business transactions such as sales bill, pass book, salary slip etc. are recorded in the books of account. Recording is done in a book called “Journal”. These financial records are divided into several books according to the nature of the business.  Accounting: Recording AIBS Example  Accounting: Classifying AIBS The book containing classified information is called “Ledger”. A ledger in accounting refers to a book that contains different accounts where records of transactions pertaining to a specific account is stored.  Accounting: Classifying AIBS Example  Accounting: Summarising AIBS Preparation and presentation of the classified data in a useful manner. This process leads to the preparation of the financial statements. The three financial statements are: a. income statement b. balance sheet c. cash flow statement  GAAP AIBS GAAP stands for Generally accepted accounting principles. (GAAP) refer to a common set of accepted accounting principles, standards, and procedures that business reporting entity must follow when it prepares and presents its financial statements.  GAAP AIBS At international level, such authoritative standards are known as International Financial Reporting Standards (IFRS). In India we have authoritative standards named as Accounting Standards (ASs) and Indian Accounting Standard (Ind AS).  Why GAAP??? AIBS a) Consistency b) Transparency c) Reliability d) Comparability  IAS vs IFRS AIBS IAS (International Accounting Standards) IFRS (International Financial Reporting Standard) IAS was developed between 1973 to IFRS was developed in 2001 by the 2003 by the International Accounting International Accounting Standards Standards Committee (IASC) Board (IASB) IAS covers a broad range of topics IFRS covers all IAS standards and related to financial reporting additional industry-specific standards IAS focuses on general accounting IFRS focuses on covering both principles general principles and specific requirements for various industries and transactions  IAS vs IFRS AIBS IAS (International Accounting Standards) IFRS (International Financial Reporting Standard) IAS is less flexible in application, IFRS is more flexible, allowing for with specific rules judgment and interpretation based on individual circumstances IAS is used by various countries IFRS is a widely adopted global around the world but is less widely standard for financial reporting, used accepted than IFRS by over 140 countries IAS can result in differences in IFRS generally leads to greater reported financial information due to consistency and comparability in differences in the interpretation and reported financial information due to application of specific rules broader principles-based guidance  IAS vs IFRS AIBS IAS lacks specific guidelines for identifying, measuring, presenting, and disclosing information about non-current assets intended for sale. IFRS, on the other hand, has new rules about how to handle these types of assets.  Indian Accounting Standards (Ind AS) AIBS Indian Accounting Standards (Ind AS) are a set of accounting standards notified by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013, which converge with International Financial Reporting Standards (IFRS). The adoption of Ind AS aims to bring transparency, accountability, and efficiency to financial statements and improve comparability with global counterparts.  Indian Accounting Standards (Ind AS) AIBS Accounting Standards deal with the following aspects i.recognition of events and transactions in the financial statements; ii.measurement of these transactions and events; iii.presentation of these transactions and events in the financial statements iv.the disclosures relating to these transactions and events  Indian Accounting Standards (Ind AS) AIBS There are in total 29 accounting standards. Accounting standards 6 (depreciation accounting) and 8 (accounting for research and development) have been withdrawn. Effectively Ind AS issued 27 accounting standards.  Basic Terms in Accounting AIBS Entity: An identifiable business enterprise. – Example: TCS, SAIL, Reliance Industries etc. Transaction: Involvement of movement of money. – Example: Payments of bill, purchase of items via cash or on credits.  Basic Terms in Accounting AIBS Assets: resources a business either owns or controls that are expected to result in future economic value. – Example: cash, savings accounts, bonds, life insurance policies, jewelry and collectibles – Types: Fixed Assets and Current Assets – Fixed asset is a tangible piece of property, plant, or equipment (PP&E) that you own or manage with expectations that it'll continuously help generate income. – Current asset is a resource a company could use, turn into cash, or sell within a year.  Basic Terms in Accounting AIBS Liabilities: simply a debt or obligation. – Example: car payments, rent, and credit card bills. – Types: Current and non-current liabilities – Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle. Example are accounts payable, salaries. – Non-current liabilities are the debts a business owes, but isn't due to pay for at least 12 months. Example is bank loans.  Basic Terms in Accounting AIBS Capital: Amount invested to start the business – It can be in the form of cash or raised through different sources like shares, debt, bank loans etc. – When the owner introduces capital to the business it becomes a liability for the business. Sales: Revenue generated from the selling of goods and services – Sales can be in cash or on credit (Account Receivables in assets)  Basic Terms in Accounting AIBS Expenses: Cost incurred to run the business. – Example: Rent, wages, depreciation, electricity cost etc. Expenditure: Spending of money for business benefits. – Example: Purchase of machines. – If the benefit of expenditure is exhausted in a year then it is know as revenue expenditure and if the benefit of expenditure is more than a year then it is capital expenditure.  Basic Terms in Accounting AIBS Profit: An excess of revenue after deducting the expenses during the accounting period. Loss: Excess of expenses over its revenue for a period of time. – Example: Goods lost by theft or fire accident Voucher: Documentary evidence in support of transaction.  Basic Terms in Accounting AIBS Drawings: Withdrawal of money by the owner from the business for personal use. Purchases: Total amount of goods procured by a business. Debtors: Person or an entity who buy goods on credits from a company (It is an asset).  Basic Terms in Accounting AIBS Creditors: The company purchased some goods or services on credits (It is a liability).  Accounting Equation AIBS Relationship between – Assets, company’s resources – Liabilities, company’s obligations – Capital, Owner’s equity or shareholders’ equity Total Assets = Total Liabilities + Shareholders’ Equity It is also known as balance sheet equation.  Accounting Equation AIBS All assets owned by the business is either supported by owner’s equity or the amount raised through loans or debentures. Accounting Equation AIBS AIBS  DOUBLE ENTRY SYSTEM AIBS Every transaction has two-fold aspects–debit and credit and both the aspects are to be recorded in the books of accounts. Therefore, in every transaction at least two accounts are effected. For example, on purchase of furniture either the cash balance will be reduced or a liability to the supplier will arise and new asset furniture is acquired.  Example AIBS Cash of $10,000 is invested in the business by investors in exchange for $10,000 of common stock.  Example AIBS Cash of $10,000 is invested in the business by investors in exchange for $10,000 of common stock.  Example AIBS Sierra borrowed $5,000 from Castle Bank by signing a 3- month, 12%, $5,000 note payable.  Example AIBS Sierra borrowed $5,000 from Castle Bank by signing a 3- month, 12%, $5,000 note payable.  Example AIBS Sierra purchased equipment by paying $5,000 cash to Superior Equipment Sales Co.  Example AIBS Sierra purchased equipment by paying $5,000 cash to Superior Equipment Sales Co.  Example AIBS Sierra received a $1,200 cash advance from R. Knox, a client. Sierra received cash (an asset) for guide services for multi-day trips that it expects to complete in the future.  Example AIBS Sierra received a $1,200 cash advance from R. Knox, a client. Sierra received cash (an asset) for guide services for multi-day trips that it expects to complete in the future.  Example AIBS Sierra received $10,000 in cash (an asset) from Copa Company for guide services performed for a corporate event.  Example AIBS Sierra received $10,000 in cash (an asset) from Copa Company for guide services performed for a corporate event.  Example AIBS Sierra paid its office rent for the month of October in cash, $900.  Example AIBS Sierra paid its office rent for the month of October in cash, $900.  Example AIBS Sierra paid $600 for a one-year insurance policy that will expire next year  Example AIBS Sierra paid $600 for a one-year insurance policy that will expire next year  Example AIBS Sierra purchased an estimated three months of supplies (raw material) on account from Aero Supply for $2,500.  Example AIBS Sierra purchased an estimated three months of supplies (raw material) on account from Aero Supply for $2,500.  Example AIBS Sierra paid a $500 cash dividend. Dividends are a reduction of stockholders’ equity but not an expense.  Example AIBS Sierra paid a $500 cash dividend. Dividends are a reduction of stockholders’ equity but not an expense.  Example AIBS Employees have worked two weeks, earning $4,000 in salaries  Example AIBS Employees have worked two weeks, earning $4,000 in salaries Example AIBS