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financial accounting

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Sharon Sadeli

on 25 January 2013

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Transcript of financial accounting

Financial Accounting The Accounting Equation Faithful Representation v Relevance

Various qualitative characteristics Common misconceptions Revenue vs Gain
example: clothes retailer

Expenses vs Losses
example: insurance company

Expenses vs Payables Yew Su Hui Glenda
Ong Wei Lun
Ng Chen Xuan
Sharon Sadeli
Lim Zhi Yu Qualitative Characteristics of useful Financial Information

- Relevance
Information that is capable of making a difference to decision of users

- Faithful Representation
Information that faithfully represents the actual phenomena Conceptual Framework - Faithful representation v relevance
- Various qualitative characteristics Conflict of Interest Assets = Liabilities + Shareholders' Equity 1. Share Capital
2. Retained Earnings

Reasons for splitting the two components:
1. To gauge whether the company is generating income
2. Dividends can only be paid using retained earnings Components of Shareholders' Equity Components of Retained Earnings Retained earnings from previous period Net income/
net loss Dividends Retained Earnings
at current period Type of Financial Statements 1. Income Statement
2. Statement of Changes in Equity
3. Balance Sheet
4. Statement of Cash Flows Relationships between Financial Statements 1. Income Statement with
Statement of Changes in Equity 2. Statement of Changes in Equity
with Balance Sheet R.E. at current period =
R.E. of previous period +/- net income/loss - dividends Share capital + Retained earnings = Total Shareholders' Equity 3. Balance Sheet with Statement of Cash Flows Lecture 1 and Lecture 2 Dividends Revenue
Expenses Journal Entry Rules:
1. Transaction date

2. Debit recorded first, then credit

3. Credit must be indented

4. Explanation of transaction (only if required in transaction) Recording of Journal Entry Sample Question

On 18 Jan, Richard purchased a building valued at $33,000. The purchase was paid with $15,000 and the remaining a long-term note payable. Recording of Journal Entry Posting -Recording of all the different T-Accounts

-Assigning a debit to one account and offsetting credit to another

*Debits on the left | Credits on the right T-Account Other information that can be derived from T-Account: Why the journal is important? Helps in posting more easily and quickly, because:

-They are already properly classified in the different accounts

-Make sure double counting does not occur (different dates recorded, reference notes in journal) Posting Journal to the Ledger -Grouping all T-accounts
-Provide account balances at a glance Trial Balance -Summarizes all account balances
-Prepared at the end of the period
-Total Debits = Total Credits Preparing Trial Balance -Each transaction affects at least 2 accounts

-Each transaction is recorded with at least 1 debit and 1 credit (can be more than 1)

-Foundation: Total Debits = Total Credits

-In layman’s term, LHS = RHS Double-entry Accounting ASSETS = LIABILITIES + EQUITY

Remember the arrows for ASSETS,
arrows for liabilities and equity will be opposite that
of assets

*Debit on Left | Credit on Right Rules of Debit & Credit Normal Balance of Accounts Accounting Cycle 1. Collect and analyze incoming data from your company's financial transactions

2. Record all transactions the journal

3. Post all records from the journal into the general ledger

4. Transfer and sort all individual account balances from ledger to the trial balance Q = R^2 Old Is Fun Q1. Which of the following accounts is not

increased by a credit?




D.Owner’s Equity (Capital) Quiz!!! Quiz!!! Q2. Completed $2,400 of services for a client

who must pay within thirty days.

A.Debit Cash, Credit Accounts Receivable

B.Debit Cash, Credit Service Revenue

C.Debit Accounts Receivable, Credit Service Revenue

D.Debit Accounts Receivable, Credit Share Capital Add "Issuance of shares" if any! main long term assets equity & loan
Full transcript