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Accounting for Non-Accountants:

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Catherine Maquinto

on 22 March 2014

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Transcript of Accounting for Non-Accountants:

Accounting for Non-Accountants:

design by Dóri Sirály for Prezi
Course Objectives
Learning Outcomes
Business Transactions
Economic activities of business enterprise which affect any of the basic accounting elements

Double Entry System
Based on dual aspect concept
For every change in financial set up, there would always be a two-sided effect to the extent of the same amount in the accounting books

Simple Rules of Debit and Credit
Course Outline
Introduction to Accounting
Accounting Events

Occurrences that affect any of the basic accounting elements

Basic Accounting Equation
Asset = Liabilities + Capital

Important things to consider in Double Entry System: Debit and Credit
Debit – value received
- Left-hand side
- “charge”
Credit –corresponding value parted with of the debit
- right-hand side

Accounting form of record in which the effect of similar business transactions are grouped or classified.
Device use to record increases and decreases of a specific asset, liability, owner’s equity, revenue and expense

Chart of Accounts
Lists of all accounts used to maintain a uniform account name used to record economic transactions

Accounting Phases
1. Source Documents
Official Receipt
2. Recording
General Journal
Cash Disbursement Journal
"Understanding the Language of Accounting Towards Effective Business Communication"
3. Classifying

Posting to General Ledger
4. Summarizing

Trial Balance
Income Statement
Balance Sheet

Financial Statements
Income Statement
Owner’s Equity Statement
Cash Flow Statement
Statement of Financial Position

Income Statement
Cash Flow Statement
Balance Sheet
Statement of Owner's Equity
Elements of Statement of Financial Position (SFP)

resources or things of value owned by the business.
Examples: cash, inventory, patents

Present obligations that requires payment of cash/cash equivalents
Example: SSS Premium Payable

Owner’s Equity/Capital
Residual amount after deducting liabilities from assets.
Parts of Statement of Operation

earnings of the business from sales of goods or services rendered
Costs incurred in conducting the business activities.
Preparation of Financial Statements
Financial Statements: Monthly, Quarterly, Annually
Relevant, Consistent, Adequate Disclosure

Determination of Net Income or Net Loss
Income Statement and Balance Sheet are totaled to arrive at sub-totals
Difference of sub-totals represents :
Credit exceeds debit = Income
Debit exceeds credit = Loss

Closing Journal Entries
Entries that bring temporary accounts to zero balance and transfer their balances to the permanent capital account.

Closing Journal Entries
Preparation of Post-Closing Trial Balance
Contains only the real accounts which shall become the beginning accounts for next accounting period.

Post Closing Trial Balance
Adjusting and Reversing
Adjustments are recorded in the general journal and posted in the general ledger
Reversing Entries are entries made at the beginning of next accounting period

Adjusting Entries
Reversing Entries
Purpose of Reversing Entry
Purpose of reversing entry is to simplify recording of recurrence transactions of next accounting period.
Financial Statement Analysis
Did the company make a profit or incur loss in the last month or year?
How much of the total revenue is the net profit or net loss?
How much of the total revenue is the expense?

How is the result of operation compare against last month or same month last year?
How are the income and expense compared against the budget?
Do the company have enough cash to fund normal operation for next month?

Useful Ratios for Financial Statement Analysis

Pre-tax surplus % = Net Income before Tax divide by total revenue
Rate of Return on Assets = Net Income divide by Average Total Assets
Rate of Return on Equity = Net Income divide by average equity

Liquidity and Solvency

Current Ratio = Current assets divide by current liabilities
Quick Ratio or Acid-test ratio = quick assets divide by current liabilities
Working Capital = current assets less current liabilities


Debt Ratio = Total liabilities divide by total assets
Equity Ratio = Total equity divide by total asset
Debt to Equity Ratio = Total Liabilities divide by total equity

Accounting Cycle
Example of Chart of Accounts
Book of Accounts
General Ledger
Subsidiary Ledger

book of original entry initially records business transactions and events
book of final entry
accounts and their related amounts are posted and summarized periodically

Two Kinds of Ledger
General Ledger – grouping of all accounts used in preparing financial statements
Subsidiary Ledger – group of like accounts that contain independent data of a specific general ledger

General Ledger
Subsidiary Legder
To be acquainted with contents of basic financial statements and be able to develop skills such as leadership, analytical thinking and communication skills to be able to provide quality advice for strategic decision making.

Analyze and interpret data in the Balance Sheet and Income Statement, using various tools.

To enhance ability and competency level of employees as well as to serve as an avenue for continuing education and training
Participants will gain the appropriate skills and confidence to:

Comprehend a Balance Sheet and Income Statement
Explain the purpose of the Balance Sheet and Income Statement
Learning Outcomes
Participants will learn:
To prepare Balance Sheet and Income Statement.
To analyze and interpret financial position from Balance Sheet and financial performance from Income Statement using various tools.
Course Outline
Introduction to Accounting
Accounting Phases
Interpretation/analysis of financial reports
Measures, processes and communicates financial information about the business.
Allows for the preparation of financial reports or statements.
Enable user to make sound business or economic decision.

It is the initial activity or clerical part of accounting.
Primarily concerned with procedures in the making and keeping of accounting records.

Difference Between Accounting and Bookkeeping
Accounting starts where bookkeeping ends.
Bookkeeper records transactions; accountants classifies, summarizes and prepares financial statements from the recorded transactions

Financial reports
Tax Returns

recording of transactions
Diagram showing the difference between accounting and bookkeeping
To ascertain the results of the business operations.
To ascertain financial position of the business
Help financial users see the true picture of business and predict enterprise’s financial capacity

Objectives of Accounting
Liquidity Ratios
Current Ratio (2013) = Current Assets of 870,828
Current Liabilities of 390, 508

= 2.23:1 or 223%

Quick Ratio (2013) = **Quick Assets of 106,789 +


Current Liabilities of 390, 508

= 1.11:1 or 1.11%

Activity Ratios

** Note:(Quick assets include cash, trading securities and receivables )

Inventory Turnover (2013) = Cost of Goods Sold of 2,208,520

Average Inventory of
(297,654 + 334,863)/2

= 6.98 times

Fixed asset turnover (2013) = Net Sales of 3,007,887

Average net PPE of
(135,754 + 166,481)/2

= 3.04:1 or 304%

Profitability Ratios

Gross Profit ratio (2013 ) = Gross Profit of 799,367

Net Sales of 3,007,887

= 0.26 or 0.26:1 or 26%

Return on Equity (2013) = Net Income of 116,030

Ave. Stockholder’s Equity of (415,142 + 376,631)/2
= 0.29:1 or 29%

Debt Ratio (2013) = Total Liabilities of 598,930

Total Assets of 1,006,582

= 0.59:1 or 59%
Debt to Equity Ratio (2013) =Total Liabilities of 598,930

Total Stockholder’s Equity of 415, 152
= 1.44:1 or 144%

Leverage Ratios

Calculate the Profitability ratio based on the Income Statement and Balance Sheet presented for Jethro Trading.
Analyse the profitability of the business and state its impact as of December 31, 2013.

Thank you for coming!
The End of the Presentation
Additional Information:

1. Beginning Stockholder’s Equity: 415,142
2. Ending Stockholder’s Equity: 376,631
3. Tax Percentage: 30%
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