Accounting

1. Accounting Pratiksha Ranchod

2. Introduction to Accounting • In the 15th century Luca Pacioli developed the 1st method of recording business transactions. • Accounting is a language used to record financial transactions. • Users of financial information

3. Users of Financial Information • Financial institutions • Owners • Management • Employees • Suppliers • Investors • Government • Community • Customers

4. Uses of accounting information • Financial condition of the business • Profit or loss • Departmental performance • Which activities or products made profits • Make or buy? • Cost of production • Impact of existing and new policies • What changes should be made

5. Uses of accounting information • Increased volume of transactions • Accounting records eliminate the need to remember all the transactions • Enables business to compare results • Taxation authorities are able to rely on the information prepared • Proper record keeping  good evidence • Financial records  basis for negotiations

6. Generally Accepted Accounting Practice • GAAP – framework of accounting standards, rules and procedures • IFRS – International Financial Reporting Standards – used to be IAS • APB – Accounting Practices Board – official accounting standard setter in South Africa

8. The Balance Sheet • Assume we bought a house (property) with a cost of R 750,000 • We obtained a home loan to finance the purchase of the property for R 500,000 • How much did we have to contribute towards the purchase of this property?

9. The Balance Sheet • The Balance Sheet therefore represents • What we OWN • What we OWE • Owner • Third Parties

10. Accounting Equation • What we • What we = OWN OWE

11. Accounting Equation • What we • What we = OWN OWE Assets = Owner’s Equity + Liabilities

12. Accounting Equation • What we • What we = OWN OWE Assets = Owner’s Equity + Liabilities R 750,000 = R 250,000 + R 500,000

13. Accounting Equation Assets = Owner’s Equity + Liabilities Owner’s Equity = Assets - Liabilities Liabilities = Assets – Owner’s Equity

14. Introduction to Financial Statements • There are three basic financial statements which are important to understand how a business is performing. • Statement of Financial Position, • Statement of Comprehensive Income

15. GAAP Principles • The business entity principle • The continuing “going” concern concept • The materiality principle • The principle of prudence • The objectivity principle • The time period concept

16. GAAP Principles • The revenue recognition convention • The matching principle • The cost principle • The consistency principle • The full disclosure principle

18. Business Forms • Legal personality • Starting procedures • Obtaining capital • Ownership & management • Distribution of profits • Income tax • Sole Trader / Proprietor

19. Financial Accounting vs Management Accounting

20. Management Accounting

21. Transactions take place Source Documents summarise the transactions Journals summarise the source documents The general ledger summarises the journals The Trial Balance summaries the general ledger