BASIC OF ACCOUNTING

1. Definition of accounting2. The important of financial management3. Categorization of Asset, Liabilities, Owner Equity,

Expenses & Revenue

Financial Statement

• Business financial affairs should be managed efficiently and carefully.

• cash flow (money in and out) should be recorded.• Significant accounting skills are needed to ensure

the flow of revenue and expenditure is recorded in detail (the preparation of financial statements)

• Complete financial records will help financial managers make decisions and prepare the budget in the future.

What is Accounting?

• The process of providing information about the financial position and results of the operations of an entity to assist the interested parties to make a decision.

• Involves the process of identifying, measuring, recording, classification, summarize, collecting, reporting and analysing

• Accounting is to provide decision makers with useful information about economic activities, such as managing business, making investments or deciding how to spend the money.

Accounting …

• Accounting also provides both information : - about current activities, and - forecast of what may happen in the future.

• All types of decision makers (managers, investors, and consumers) use accounting information as a basis for making economic decision.

User of Accounting Information :

1. Shareholders of the company2. Employee group3. Management team4. Bankers5. Trade creditors and suppliers6. The analyst / adviser7. Government body

The Important of Accounting Information

To give a view of picture regarding to :- the financial performance,- the financial position and

- the liquidity of the company cash flows.

The purposes of recording and analyzing accounting information :

1. The memory of human is limited. As a result, record of the business transactions will be easy for the future reference.

2. To ensure the financial position of an organization in order to find out whether the company is in profit / loss situation.

3. Management responsibility are keep on complicated (especially in a large organization).

If the business transactions do not properly recorded, the financial report will not give a true and fair view to the users of accounting information.

The Important of Financial Management

• To ensure the company goals can be achieved - maximizing shareholders wealth, maximize profits and

minimize costs.

• To achieve financial objectives - Managing current assets and current liabilities as well - cash flow meet the company’s vision and goal - Plan financial suit with the company’s funds - Planning budget

The Important of Financial Management

• Sources of financial can be used as best as possible- Control the flow of business financial resources and

expenses as well as possible.

• Find alternative investments that promise high returns and reduce risk of loss.- Obtain the higher rate of return on investments and profits

from an investment made.

• Accelerate return on capital- Having the chance to speed up the cycle of business capital

Categorization of Asset, Liabilities, Owner Equity, Expenses and Revenue

Assets Account• Account used to record the economic resources or property

owned by a business entity. • Asset account is divided into two, current assets and non-current

assets. • Current assets are assets that are easily converted into cash.

Examples of current asset account such as cash accounts, bank accounts, stock/inventory accounts, accounts receivables, accounts revenue receivable and accounts prepaid expenses.

• While non-current assets are assets that take time to be converted into cash. For example, machine account, vehicle account, furniture account, building account, equipment account and investment account.

Categorization of Asset, Liabilities, Owner Equity, Expenses and Revenue

Liability Account• Account used to record the amount of business debt to

external parties. • Liability account is divided into two, current liabilities and

long-term liabilities. • Current liabilities are liabilities that can be solved in the short

term or less one year. Example of current liability accounts are accounts payables, bank overdrafts, accounts expenses payable, and prepaid revenue account.

• While long-term liabilities are liabilities or the debt that will take more than a year to complete, such as loans and mortgage accounts.

Categorization of Asset, Liabilities, Owner Equity, Expenses and Revenue

Capital Account (Owner Equity)• Account used to record business debt to business

owners such as initial capital.

Revenue Account• Account used to record the amounts received or receivable

from the sale of goods or services (the main activity of the entity) in one accounting period.

• Examples of revenue such as sales revenue account, accounts receivable, rent account and received commission account.

Categorization of Asset, Liabilities, Owner Equity, Expenses and Revenue

Expenses Account• Account used to record the expenses involved or

used to derive the above revenue. • Examples of expense accounts such as rental expense

accounts, travel expenses account, commission expenses, advertising expenses, insurance expenses, utility expenses (telephone, water and electricity) and expenses of wages and salaries.

THANK YOU…

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