chapter 1 introduction to accounting
TRANSCRIPT
![Page 1: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/1.jpg)
Chapter One
Introduction to Accounting
![Page 2: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/2.jpg)
In the chapter you will learn to:•Understand the difference between bookkeeping and accounting•Understand why business need to keep accounting records
![Page 3: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/3.jpg)
In the chapter you will learn to:• Understand the meaning of terms assets, liabilities and capital• Understand and apply the accounting equation• Prepare a simple balance sheet
![Page 4: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/4.jpg)
Accounting Terminology
Financial statement purchases Income statement Gross Profit Balance sheets Net Profit Assets Fixed Assets Capital Land & Building Liabilities Plant and Equipment Sales Bank Expenses Cash Sales
![Page 5: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/5.jpg)
Accounting
![Page 6: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/6.jpg)
![Page 7: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/7.jpg)
The activity of providing goods and services involving financial and commercial and industrial aspects
![Page 8: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/8.jpg)
![Page 9: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/9.jpg)
Two sections of Accounting:
1. BookkeepingThis is a process of detailed recording of all the financial transaction of a business.
Records of daily Income & expenses
Sept 1 Bought t-shirt @ H&M RM50
Sept 2 Meals @ seoul GardenRm45
Sept 5 Movie @ 1City Rm12
Sept 10 Car Maintenance Rm100
Sept 15 Received allowance Rm500
Sept 15 coffee @ Starbucks RM20
![Page 10: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/10.jpg)
What is the difference between Bookkeeping and Accounting?
Bookkeeping is the process of recording, in chronological order, the daily transactions of a business entity. It forms part of the accounting information system.
On the other hand, accounting is an information system – includes the process of recording, classifying, summarizing, reporting, analysing and interpreting the financial condition and performance of a business
![Page 11: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/11.jpg)
Double entry Bookkeeping
The basis of maintaining these detailed records
![Page 12: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/12.jpg)
2. Accounting
This uses the bookkeeping records to prepare financial statements at regular intervals.
![Page 13: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/13.jpg)
Financial statements
1. Income statement (trading, profit and loss account)
2. Balance sheet
![Page 14: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/14.jpg)
Income statement Shows calculation of the profit and loss earned by the business.
Amount Invested
$
Expenses
$
Profit/ loss
$10,000 8,500 1,50010,000 11,500 1,500
![Page 15: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/15.jpg)
Balance Sheetand what the business owes, its liabilities
This shows what the business owns, its assets;
![Page 16: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/16.jpg)
![Page 17: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/17.jpg)
(Owner’s Equity)
Any resources provided by the owner of the business
provided
![Page 18: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/18.jpg)
The actual resources that are then in the business are called assets
Assets
![Page 19: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/19.jpg)
Capital=Assets
![Page 20: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/20.jpg)
Things owned by the business (or owed to
the business) are regarded as the resources of the
business
![Page 21: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/21.jpg)
Van/ Vehicle/ motor vehicle
Cash/Bank
![Page 22: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/22.jpg)
Land
Building
Machinery /Equipment
Stocks/ inventory
![Page 23: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/23.jpg)
• When other people provide assets to the business.• The amount owed by the business to these people known as liability
Loan bank overdraftpayables
![Page 24: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/24.jpg)
Borrow money
• the business owes to the bank• The business obliged to pay back the
bank• Therefore, the business has a liability
to the bank
![Page 25: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/25.jpg)
Accounting Equation
This is also referred as the BALANCE SHEET
EQUATION
![Page 26: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/26.jpg)
Accounting Equation Capit
alAsset
sLiabiliti
es =-
Capital
Assets
Liabilities
= +
Owner’s Equity
Assets
Liabilities= +
![Page 27: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/27.jpg)
Accounting Equation Capit
alAsset
sLiabiliti
es= +
The assets represent how the
resources are used by the business
The liabilities
and capital represent
where these resources come from
![Page 28: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/28.jpg)
Introduction to CapitalExample 1.1
20-7 January 1
Leena set up to trade under the name of The Dress Shop. She opened a business BANK ACCOUNT and paid in $20,000 as CAPITAL.
![Page 29: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/29.jpg)
Leena set up to trade under the name of The Dress Shop. She opened a business BANK ACCOUNT and paid in $20,000 as CAPITAL.
What is the name of the Business?How much is the capital she opened to the bank account?Where did she paid her capital?
![Page 30: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/30.jpg)
20-7 January 1Leena set up to trade under the name of The Dress Shop. She opened a business BANK ACCOUNT and paid in $20,000 as CAPITAL.
Date ASSETS = CAPITAL + Liabilities
Jan 1 Bank $20 000
$20 000Account Effect Account EffectAsset—Bank
INCREASE
Capital INCREASE
![Page 31: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/31.jpg)
Effect of the transactionDate ASSETS = CAPITAL + Liabiliti
es
Jan 1 Bank $20 000
$20 000Account Effect Account EffectAsset—Bank
INCREASE
Capital INCREASE
![Page 32: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/32.jpg)
January 2The Business purchased premises, $15,000, and paid by cheque.
Date
ASSETS = CAPITAL
+ LIABILITES
Jan 2 Premises
$15 000
Bank 5 000$20 000
$20 000
![Page 33: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/33.jpg)
Date
ASSETS = CAPITAL
+ LIABILITES
Jan 2 Premises
$15 000
Bank 5 000$20 000
$20 000
Effect of the transaction
Account Effect Account EffectAsset—
PremisesINCREA
SE Capital
Asset—Bank DECREASE
![Page 34: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/34.jpg)
January 3
The business purchased goods, $3,000, on credit.
Purchasing on credit means
that the business does
not pay immediately
Goods refer also as
INVENTORY/ STOCK
![Page 35: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/35.jpg)
THE BUSINESS HAS ALSO
ACQUIRED A LIABILITY AS IT
OWES MONEY TO THE
SUPPLIER
WHO IS KNOWN AS A CREDITOR
IN A BALANCE SHEET THIS IS
DESCRIBED AS A TRADE
PAYABLE
![Page 36: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/36.jpg)
January 3The business purchased goods, $3,000, on credit.Date
ASSETS = CAPITAL
+ LIABILITES
Jan 3 Premises
$15 000
Inventory
$3 000
Trade payable
$3000
Bank 5 000$23 000
$20 000 $3000
![Page 37: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/37.jpg)
Account Effect Account EffectAsset-
Inventory INCREA
SETrade
PayableINCREASE
Date
ASSETS = CAPITAL
+ LIABILITES
Jan 3 Premises
$15 000
Inventory
$3 000
Trade payable
$3000
Bank 5 000$23 000
$20 000 $3000
![Page 38: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/38.jpg)
January 4
The business sold goods, at the cost price of $1000, on credit.
Selling on credit means
that the business does
not receive the money
Goods refer also as
INVENTORY/ STOCK
![Page 39: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/39.jpg)
A NEW ASSET HAS BEEN ACQUIRED IN FORM OF MONEY OWING TO THE BUSINESS BY A
CUSTOMER WHO IS KNOWN AS DEBTOR IN A BALANCE
SHEET THIS IS DESCRIBED AS A
TRADE RECEIVABLE
![Page 40: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/40.jpg)
January 4The business sold goods, at the cost price of $1000, on credit.Date
ASSETS = CAPITAL
+ LIABILITES
Jan 4 Premises
$15 000
Inventory
$2 000
Trade payable
$3000
Trade Receivable
$1 000
Bank 5 000$23 000
$20 000 $3000
![Page 41: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/41.jpg)
Account Effect Account
Effect
Asset—Inventory DECREASE
Asset—Trade Receivable
INCREASE
Date
ASSETS = CAPITAL
+ LIABILITES
Jan 4 Premises $15 000
Inventory
$2 000
Trade payable
$3000
Trade Receivable
$1 000
Bank 5 000$23 000
$20 000 $3000
![Page 42: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/42.jpg)
The Balance Sheet
This is a statement of the financial position of a business on a certain period of time.
![Page 43: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/43.jpg)
Three elements of the accounting equationThe AssetsThe CapitalThe Liabilities
The balance sheet will be
affected every time the
business makes changes to the
assets, liabilities and capital
![Page 44: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/44.jpg)
The Dress ShopBalance Sheet at 1 January 20-7
Assets $
Liabilities $
Bank $20 000 Capital $20 000$20 000 $20 000
![Page 45: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/45.jpg)
The Dress ShopBalance Sheet at 2 January 20-7
Assets $
Liabilities $
Premises 15 000 Capital 20 000Bank 5 000
20 000 20 000
![Page 46: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/46.jpg)
The Dress ShopBalance Sheet at 3 January 20-7
Assets $
Liabilities $
Premises 15 000 Capital 20 000Inventory 3 000 Trade payable 3 000Bank 5 000 ______
23 000 23 000
![Page 47: Chapter 1 introduction to accounting](https://reader034.vdocument.in/reader034/viewer/2022042605/58ed07461a28ab4f2b8b469f/html5/thumbnails/47.jpg)
The Dress ShopBalance Sheet at 4 January 20-7
Assets $
Liabilities $
Premises 15 000 Capital 20 000Inventory 2 000 Trade payable 3 000Trade Receivable
1 000
Bank 5 000 ______23 000 23 000