Download to read offline
Uploaded byLamar Van Dusen
Lamar Van Dusen | The Accounting Equation for Businesses
The document outlines the meaning, functions, and distinctions between accounting and bookkeeping, emphasizing that accounting involves the analysis and interpretation of financial records. It explains various accounting processes, financial statements, and the purposes they serve, such as profitability analysis and decision-making for stakeholders. Additionally, it covers different business structures like sole traders, partnerships, and companies, along with their features and liabilities.
More Related Content
Similar to Lamar Van Dusen | The Accounting Equation for Businesses
Lamar Van Dusen | The Accounting Equation for Businesses
- 1.
- 2. The meaning& functions of Accounting The difference between Accounting & Bookkeeping The purpose of keeping Accounting records The Accounting Cycle/Process Identify the different users of Accounting information
- 3. Accounting isthe language of business It involves: Recording transactions Classifying transactions Summarising transactions Interpreting and analysing transactions
- 4. Recording Journal Classifying Trial Balance Final Accounts Ledger Interpretation Summarising Dayto day recording of transactions “T “shape accounts Verification of accuracy of accounts Preparation of reports Ratio Analysis
- 5. Bookkeeping involvesthe actual data recording This is often computerized in organizations Accounting is concerned with the use, analysis & interpretation of accounting records
- 6. Income Statement or Profit& Loss Account Revenue – Expenses = Income (or profit) Balance Sheet Asset – Liability = Owners Equity Cash flow statement $ Receipts - $ Payments = Changes in cash balance
- 8. Profitability Returnon investment Operational efficiency (day-to-day operation) Ensure security of investment Basic functions like planning, budgeting, decision-making and control purposes
- 9. Earning capacityof the business Solvency or financial strength of the business Ability of the management Decision to invest in a business
- 10. The borrower'scapacity for repayment Whether to grant a credit or advance money to a busines The limits of advance, or credit limits for a customer
- 11. To discussand arrange labour contracts To be assured of steady employment To determine the ability of the business to pay higher wages
- 12. To evaluatetax returns to calculate tax payable by the business To check that the business is following the government rules and regulations
- 13. To knowthe effect of pricing on customers To judge the ability of the firm to survive and honour it's product warranties
- 14. Profitability ofthe firm Security of capital Return on their investment (ROI) Resources owned Financial stability Whether to increase of decrease their existing ownership in the firm
- 15. Capital Resourcessupplied by the owners to the business Assets Resources owned by the business Liabilities What the business owes for the assets supplied Purchase Goods bought by the business Sales Goods sold by the business
- 16. Purchase return/Goods returned by the business to it's suppliers Return outwards Sales return/ Goods returned to the business by it's customers Return inwards Creditor A person to whom the business has to pay for goods and services rendered. Debtor A person from whom the business has to receive money for goods and services supplied.
- 17. Stock Unsoldgoods Expense Cost of operating the business Revenue Money received for goods and services supplied Profit Revenue minus expenses Loss Expense minus revenue
- 18. The AccountingEquation Assets = Liabilities + Owner's Equity
- 19. Sole Trader Features This is a one-man show Capital put in by the owner Business is run by the proprietor Profits and losses at the year end are taken over by the proprietor Usually small retail establishments Unlimited liability
- 20. Partnership Features Minimum 2 people, maximum 10 or 20, depending upon the type of partnership Capital contributed by all partners Every partner has a right to participate in the business Each partner acts as the principal and agent of the firm Profits or losses at the end of the year are shared in the agreed ratio Usually professionals like doctors, lawyers, accountants, etc Unlimited liability
- 21. Company Features Largest form of business organisation Capital contributed by the public, who are joint owners of the company Can be public or private Separate legal entity Registered under the company's act Ownership and management is usually separate No limit to the maximum amount of members Accounts must be prepared and audited yearly under the company's act