Basic Accounting Level II By

Sivakumar Ganesan B. Sc, ACA, ICWA, PMP, PDIM Global Technology Services LLc, UAE

Email:sivakumar3009@gmail.com

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Agenda

What is Accounting

Mode of Learning Accounting

Accounting and Finance - Difference

Accounting Concepts / Conventions

Accounting Events

Rules of Accounting

Preparation of Financial Statements

A Simple Case Study

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Accounting is defined as the art of Recording, Classifying and Summarizing transactions in monetary terms (in Money terms) for the preparation of Financial Statements

JOURNAL

PAYMENT

Vision Enterprises

Financial Statement

at December 31, 1997

Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability

Contributed Capital Retained Earnings

Equity

$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======

Vision Enterprises

Financial Statement

at December 31, 1997

Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability

Contributed Capital Retained Earnings

Equity

$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======

Vision Enterprises

Financial Statement

at December 31, 1997

Assets Cash Account Receivable Land Total Assets Liability Account Payable Notes Payable Total Liability

Contributed Capital Retained Earnings

Equity

$4,456 $5,714 $ 981 --------- $11,151 ====== $3,830 $ 416 --------- $4,246 ====== $2,365 $ 367 --------- $2,732 ======

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What is Accounting

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What is Accounting Accounting is the art of recording, classifying and Summarizing financial transactions in the Preparation of Financial Statements

Recording refers to creating Journal entry for every financial transaction with Debit and Credit amounts.

Classifying refers to Classifying each of the Debit / Credit Transaction to Capital or Revenue and Asset, Liability, Revenue or Expense

Summarizing refers to Grouping the Transactions of Asset, Liability, Revenue and Expenses and preparing the Financial Statements (Trading, Profit and Loss Account and Balance Sheet)

In case of

Trading, Manufacturing and Customer Service oriented Organization, the sum of all income and expenses is referred to as Profit and Loss account

Social Service oriented Organization like Schools, Hospitals and Government Organizations, Banks it is referred to as Income and Expenditure account .

Note:- Trial Balance is not a Financial Statement. It is only a summary of all Debit and Credit Transactions.

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Mode of Learning Accounting

Change your mindset that accounting means only Debit and Credit

Do not blindly learn Accounting Rules and apply the rules of Debit and Credit

The Best way to Learn Accounting is Learn the Accounting Concepts

Understand the Accounting Conventions

Classify the Accounting Event

Apply the Accounting Rules

Record, Classify and Summarize the Journal You are Confused. Am I right?

Do not become panic and move forward, you will understand

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Mode of Learning Accounting

Learn Accounting Concepts (Ten Fundamental Accounting Concepts)

Understand Accounting Conventions (Three major conventions)

Classify the Accounting Events (Capital, Revenue, Deferred Revenue Expenditure)

Apply the Accounting Rules (Personal, Real and Nominal Rules)

Record the Transaction as a Journal (Entering the Debit and Credit Side of Transaction)

Classify the Transaction (Asset, Liability, Revenue or Expense)

Summarize the Transaction (Prepare Trial Balance, Trading, P&L and Balance Sheet)

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Finance and Accounting - Difference Finance Accounts

Procurement and Utilization of

Funds

Recording of an Accounting

Event

Leads to Investment Decisions Expressed in Monetary Terms

Financing Decisions Recording , Classifying and

Summarizing Transactions

Futuristic Preparation of Financial

Statements (Trading, Profit and

loss Account and Balance

Sheet)

Cost of Capital Historical

Cash Flow / Fund Flow Compliance with Statutory

Matters like companies Act,

Income Tax Act, Sales Tax Act

Etc.,

Project Appraisal

Ratio Analysis

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Accounting Concepts/Conventions

(US GAAP/UK GAAP/IFRS/SOX) The Concepts and conventions of accounting are developed by IASC (International Accounting Standards Committee) which is in-charge of releasing International Accounting Standards (IAS)

The IASC Decides the preferred Accounting practices worldwide and encourages the worldwide acceptance

There are 41 International Accounting Standards

Now IFRS (International Financial Reporting Standards) and SOX (Sarbanes Oxley) Act gain more importance which came up from US GAAP and UK GAAP

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Difference between Concepts and Conventions

The Accounting Concepts / Principles evolved out of the

Practice and Procedures followed by different countries

and later on established by the International Statutory

Accounting Bodies like The Institute of Chartered

Accountants of India, The Institute of Chartered

Accountants of England and Wales etc to become an

Accounting Principle statutorily need to be followed

while preparing the Financial Statements. In nutshell this

has evolved out of standard Practice followed by several

countries while preparing the Trading, Profit and Loss

Account and Balance Sheet.

The Accounting Conventions / Practices are basically

assumptions and expected to be followed while

preparing the Financial Statements.

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Accounting Concepts / Principles

Business Entity Concept

Money Measurement Concept

Dual Aspect Concept

Cost Concept

Accounting Period

Conservatism

Realization Concept

Matching Concept

Materiality Concept

Objectivity