Understanding accounting

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Understanding Accounting Prepared by Mohamed Farrag LOCGULF December 3, 2015 Authored by: Mohamed Farrag @: [email protected] +601127571965 +971528859306

Transcript of Understanding accounting

Page 1: Understanding accounting

Understanding Accounting

Prepared by Mohamed Farrag

LOCGULF

December 3, 2015

Authored by: Mohamed Farrag

@: [email protected]

+601127571965

+971528859306

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How do organizations communicate business information?

Achieving requires sharing of a

Important Terms:

Organization.

Communication.

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.

Bookkeepers.

Fact

Financial Statements upon Accounting Data

Preparation Presentation

Management

Internal Stakeholders

External Stakeholders

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External Information

Financial Statements

Accounting Data

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Budgeting Short Term & Long Term Financing

Forecasting

Analyzing

Determining

&

Managing

Project Risks

Financial Statements

Capital Markets

Managing & Controlling Assets

Studying Money

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Business Success is measured in financial terms.

Stakeholders need a way to track economic activity and understand what’s 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 organization’s

shared with the

aren’t 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.

involves;

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.

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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.

Instance:

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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

transaction.

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.

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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.

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Instance

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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.

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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

company.

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ASSETS= LIBALITIES+EQITY

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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.

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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.

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Identfying Recording Reporting Analyzing Interpreting