Understanding accounting

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Transcript of Understanding accounting

  • Understanding Accounting

    Prepared by Mohamed Farrag


    December 3, 2015

    Authored by: Mohamed Farrag

    @: farrag.l10n@gmail.com



  • How do organizations communicate business information?

    Achieving requires sharing of a

    Important Terms:



    Common Language.

    Business Information.

    Accounting + Finance = Key Activities

    Accounting + Finance = Common Language = Sharing Business Information.

    Accounting is Internal Function.

    Accounting involves ( / / ).

    Important Terms:

    Business Transactions.

    Financial Events.



    Financial Statements upon Accounting Data

    Preparation Presentation


    Internal Stakeholders

    External Stakeholders

  • External Information

    Financial Statements

    Accounting Data

  • Budgeting Short Term & Long Term Financing






    Project Risks

    Financial Statements

    Capital Markets

    Managing & Controlling Assets

    Studying Money

  • Business Success is measured in financial terms.

    Stakeholders need a way to track economic activity and understand whats really going

    on with the business.

    is the function that transforms the numbers associated with economic

    activity into usable financial information.

    is a multi-layered function.

    reflect an organizations

    shared with the

    arent the only

    Accountants are required to provide decision makers and controllers with interim reports

    & information.

    More often the not, involves and the

    including the for its users.

    Marketing Departments may want to know which product is more profitable before they

    decide on new advertising campaigns.

    Every conducted within a business has a direct or indirect effect on

    the finance of the company.

    The in Known as

    begins with which to

    What constitutes

    1. Expressed in Monetary Terms.

    2. Must be related to the business.

    offers a on the of an organization.

    events also have significant impact on the financial well-being of the

    organization and need to be considered along with accounting information.

    The second activity in transactions, after classified

    them in various accounts.

    is a part of accounting function.


    1. The mechanical aspect of recording.

    2. Classifying.

    3. Summarizing transactions in several accounting areas.

    4. Compiling data in the general ledger

    5. Posting the data to the respective financial statements.

    The setup the bookkeeping system, monitors it, and prepares &

    presents financial statements.

  • Bookkeeping is used to track business activity by recording what a transaction affects

    and how it affects it.

    Each transaction affects specific account, and impacts what a company owes or owns.

    There are two common system of bookkeeping.

    1. Single Entry.

    2. Double Entry.

    Single Entry: Simplistic, Making it accessible to organizations and people with limited

    accounting knowledge.


  • The single entry system records each transaction only once.

    Single Entry System is suitable for small organizations.

    Double Entry Bookkeeping has become the standard.

    The Double Entry Bookkeeping System represents the two-fold effect of each


    The Double Entry Bookkeeping assumes that, the money never gained or lost.

    The Double Entry Bookkeeping assumes the money transferred from a source account

    to a destination account.

    Each Transaction is recorded twice, at Double Entry Bookkeeping.

  • Two types of accounting methods are commonly used to record business transactions.

    1. Cash Method.

    2. Accrual Method.

    The most common combination and popularly considered the standard of business- is

    the Double Entry Bookkeeping + Accrual Accounting.

    Two supporting activities.

    1. Analyzing & classifying each transaction to determine which account or accounts

    are affected.

    2. Determining how the account is affected.

    Analyzing the transaction means determining which accounts the transaction increases

    or decreases, and then whether the accounts affected are increased or decreased by

    credit or debit.

  • Instance

  • Two books are used to record transactions.

    1. Journals.

    2. Ledgers.

    A general journal holds a chronological listing of daily transactions.

    This is the only place that all the details of a transaction are recorded.

    Each Entry contains the date, accounts affected, a reference, the debit & credit

    amounts, and an explanation of the transaction.

    The general ledger is used to organize transactions by individual accounts and to post the

    transactions recorded in the journal into these accounts.

    Journal transactions are transferred to the ledger daily or weekly.

    A journal reference is recorded in the ledger.

  • Correcting Entries are made to address any recording errors.

    Any Adjustment Entries are made at the end of the accounting period.

    Following the adjustment of the trial balance, financial statements can be prepared.

    Once the trial balances and the accounting data are complete and accurate, financial

    statements are prepared and temporary accounts are closed.

    are of a over a business financial performance

    specific period of time.

    are shared with both within and outside the



  • Ethics in Financial Reporting is Fundamental Business Concept.

    Ethical Standards also guide how accountants record transactions.

    Following 3steps can help accountants approach and resolve ethical issues.

    1. Recognizing ethical situations and the issues involved.

    2. Identifying stakeholders and analyzing their involvement.

    3. Identifying solutions and considering the impact of each.

  • The important Principles of the financial statements.

    1. Financial statements are one of many sources of communicating financial

    information about an organization.

    2. The values reported are approximate measures.

    3. Financial Statements are general purpose.

    4. The preparation of financial statements based on Accrual Accounting.

  • Identfying Recording Reporting Analyzing Interpreting