Financial accounting
the provision of financial information to mainly external parties
recording of transactions and the preparation of financial statements
Management accounting
the provision of financial information to people within the entity
financial information for specific purposes.
Elements by which the financial position is measured:
(1) Assets
(2) Liabilities
(3) Equity
Elements that measure profitability (Profit or loss):
(4) Income
(5) Expenses
resources controlled - as a result of past events - future economic benefits expected to flow to the entity
{ASSETS}
present obligations - from past events - settlement result in an outflow of resources from the entity
{LIABILITIES}
{the financial position}
Net asset value is the difference between:
the value of assets owned by an entity and the
liabilities it has incurred
Equation:
ASSETS - LIABILITIES = NET ASSET VALUE
(EQUITY)
Basic accounting equation (BAE):
A=E+L
E=A–L
{the double entry principle}
Every transaction affects two or more items in the BAE.
Transaction must be recorded in such a way that the equation remains in balance.
The dual effect which each transaction has on the elements of the BAE is the fundamental
principle on which all entries in an accounting system are based
To make a double-entry you must:
, •Think about the effect of the transaction on the BAE, thus how it is going to affect the financial position of the
entity.
•Identify the components (accounts) which are involved.
•Determine the account(s) to be debited and credited.
•The amount(s) debited must be equal to the amount(s) credited.
•Indicate the date of the transaction.
•Indicate the contra ledger account.
•Indicate the folio number of the subsidiary journal.
{the financial performance}
The financial result - measured in terms of the profit or loss made over a specific period,
normally a year.
Profit - when the income it has earned is more than the expenditure it has incurred.
The difference between the income and expenditure - profit or loss.
Profit is the owner's reward for the capital invested and the entrepreneurial spirit shown.
Profit therefore increases the equity
{the accounting process}
•The accounting process starts once a transaction has taken place
•These transactions can either be income, or expenditure transactions.
•Each transaction has an effect on two or more items in the basic accounting equation (BAE), which is the basis of
the double-entry principle.
•Therefore, transactions must be recorded in ledger accounts using the double-entry principle.
•After all ledger accounts have been balanced, a list of balances, called the trial balance, can be drawn.
{the general ledger} page 39sg
Assets (eg Bank) increase on the Debit (Dr) side and decrease on the Credit (Cr) side of the account.
Equity (eg Capital) and Liabilities (eg Creditors) increase on the credit (Cr) side and decrease on the debit (Dr)
side of the account.
Income (eg sales) increases equity and are credited (Cr) to the particular income account.
Expenses (eg wages) decrease equity and are debited (Dr) to the particular expense account.
{the trial balance}
A trial balance is a list of all the balances brought down (b/d) from the accounts in the general ledger on a
specific date.
the provision of financial information to mainly external parties
recording of transactions and the preparation of financial statements
Management accounting
the provision of financial information to people within the entity
financial information for specific purposes.
Elements by which the financial position is measured:
(1) Assets
(2) Liabilities
(3) Equity
Elements that measure profitability (Profit or loss):
(4) Income
(5) Expenses
resources controlled - as a result of past events - future economic benefits expected to flow to the entity
{ASSETS}
present obligations - from past events - settlement result in an outflow of resources from the entity
{LIABILITIES}
{the financial position}
Net asset value is the difference between:
the value of assets owned by an entity and the
liabilities it has incurred
Equation:
ASSETS - LIABILITIES = NET ASSET VALUE
(EQUITY)
Basic accounting equation (BAE):
A=E+L
E=A–L
{the double entry principle}
Every transaction affects two or more items in the BAE.
Transaction must be recorded in such a way that the equation remains in balance.
The dual effect which each transaction has on the elements of the BAE is the fundamental
principle on which all entries in an accounting system are based
To make a double-entry you must:
, •Think about the effect of the transaction on the BAE, thus how it is going to affect the financial position of the
entity.
•Identify the components (accounts) which are involved.
•Determine the account(s) to be debited and credited.
•The amount(s) debited must be equal to the amount(s) credited.
•Indicate the date of the transaction.
•Indicate the contra ledger account.
•Indicate the folio number of the subsidiary journal.
{the financial performance}
The financial result - measured in terms of the profit or loss made over a specific period,
normally a year.
Profit - when the income it has earned is more than the expenditure it has incurred.
The difference between the income and expenditure - profit or loss.
Profit is the owner's reward for the capital invested and the entrepreneurial spirit shown.
Profit therefore increases the equity
{the accounting process}
•The accounting process starts once a transaction has taken place
•These transactions can either be income, or expenditure transactions.
•Each transaction has an effect on two or more items in the basic accounting equation (BAE), which is the basis of
the double-entry principle.
•Therefore, transactions must be recorded in ledger accounts using the double-entry principle.
•After all ledger accounts have been balanced, a list of balances, called the trial balance, can be drawn.
{the general ledger} page 39sg
Assets (eg Bank) increase on the Debit (Dr) side and decrease on the Credit (Cr) side of the account.
Equity (eg Capital) and Liabilities (eg Creditors) increase on the credit (Cr) side and decrease on the debit (Dr)
side of the account.
Income (eg sales) increases equity and are credited (Cr) to the particular income account.
Expenses (eg wages) decrease equity and are debited (Dr) to the particular expense account.
{the trial balance}
A trial balance is a list of all the balances brought down (b/d) from the accounts in the general ledger on a
specific date.
