fundamentals of accounting
TRANSCRIPT
OUTLINE1. Introduction2. Objectives of the paper3. Accounting concepts4. Recording transactions5. Accounting methods6. Report and Accounts7. Sections of an Account8. Performance Metrics9. Conclusion10.(Q/A)
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INTRODUCTION
Accounting is the process that involves the recognition of a transaction and the systematic recording and analysis of the
financial information.
It helps a business to evaluate its performance and to plan for growth and profitability.
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• Demystify the subject of accounting to enable managers appreciate its adoption as a useful tool.
• Explain the basic principles and concepts behind the recording of transactions in the books of account.
• Discuss how to record transactions and the accounting methods to adopt.
• State the types of report and accounts to be presented to management with its components.
• Explain how to measure the performance of a business for decision purposes.
OBJECTIVES OF THE PAPER
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ACCOUNTING CONCEPTS
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• Economic entity: The company is seen as a separate legal entity different from its owners.
• Economic measurement: Transactions should be recognized, measured and reported in a monetary unit.
• Periodicity: Transactions should be recognised and reported in the period in which it occurred.
• Going concern: The business is expected to continue in a foreseeable future without a threat to its extinction.
• Matching principle: Transactions should be linked to the related event or counterparty.
RECORDING A TRANSACTION – Double Entry
Double entry recording: Transactions have two actions – Giving and Receiving. Increase or decrease. When one side is debited, the other is credited to ensure the transaction is balanced.
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RECORDING A TRANSACTION – Single Entry
• Rules don’t apply in recording of transaction using the single entry methods.
• Transactions are recorded as a memoranda of income and expenses.
• Accounting information are maintained in the books of original entry – sales day book, purchases day book, cash book etc.
• Single entry recording are the simplest and widely adopted by small enterprises.
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ACCOUNTING METHODS
Accrual Method Transactions are recognised at the point it is completed not the time payment is made. Revenue is recognised the time related service is performed. Expense is recognised when it occurred.Cash MethodTransaction are recognised as they occur and at the point the payment is made.
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REPORTS AND ACCOUNT - Types
The report and accounts presented to management that will help to assess the result of operation and business performance include: • Revenue report• Expenditure report• Purchases report• Inventory report• Report on Cash/Bank movements• Profit and loss account• Receivable and Payable account
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BASIC PERFORMANCE METRICS
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Operating margin
Net Profit /Turnover
Gross profit margin
Gross profit/ Turnover
Inventory turnover
Cost of Goods Available for sale/ Average Inventory
Working capital ratio
Current Asset – Current Liabilities
Current ration
Current Assets/ Current Liabilities
Return on investment
Turnover/ Total Investments
CONCLUSION
Accounting remains the only recognised language of a business. The process involves the recognition, recording, analysing and reporting of financial information for decision purposes.
Businesses that do not have adequate system of book keeping and accounting controls are exposed to the risk of collapse.
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