Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

THEORY OF ACCOUNTING
WHAT IS BUSINESS ?
Business is simply finding the right people and
the right place for your product
...
This is called business
...

➢ Garments
...

➢ If you have cash which is owned by you and it is used to generate
profit or it is a means of generating profit then it is also a
business or you can say you are doing business with that cash
...
Resources that are controlled by an
individual or a firm that help to generate profit for future economic
benefit
...


FOR EXAMPLE :
➢
➢
➢
➢

Land
...

Equipment , etc
...


i) Tangible Assets
...


i) TANGIBLE ASSETS :
The types of assets that we can physically see
and touch are called tangible assets
...

Buildings
...

Equipments , etc
...


FOR EXAMPLE :
➢
➢
➢
➢
➢

Brand names
...


TYPES OF ASSETS :
There are 2 types of assets
...

ii) Fixed Assets
...
They can
also be called short – term assets
...

Inventory
...

Marketable securities
...


ii) FIXED ASSETS :
The types of assets that generate revenue for long
periods of time are called fixed assets
...


FOR EXAMPLE :
➢
➢
➢
➢
➢

Property
...

Equipments
...

Intangible assets ( Trademarks , Patents , Goodwill , etc )
...
It does not matter whether the payment
is made or not
...


FOR EXAMPLE :
➢ An accountant works in ABC Company for a month
...
Now he is demanding salary
...
This is called expense
...

➢ Bills paid after month which shows we have taken the benefit of
Electricity
...
Obligation of an individual or a company is also called a liability
...
So this loan will be our
liability which have to pay later
...


TYPES OF LIABILITIES :
There are 2 types of liabilities
...

ii) Long – term Liabilities
...


FOR EXAMPLE :
➢
➢
➢
➢
➢

Accounts payable
...

Bills payable
...

Income taxes payable , etc
...


FOR EXAMPLE :
➢ Long – term loans
...


➢ Pension liabilities
...


WHAT IS CAPITAL OR OWNER’S EQUITY ?
Capital is the claim
of an owner in the total assets of the business
...


FOR EXAMPLE :
➢ Investing money in order to start any business
...

TYPES OF EQUITY :
There is only 1 type of equity
...


WHAT IS INCOME ?
Income is the total collection of business
...


FOR EXAMPLE :
Any kind of profit or loss in a business
...
1) Write down 5 Assets ? Keep in mind that they will provide future
economic benefit
...
2) Think how you should start a business ? Hint ! Finding the right
people and the right place for your product is necessary
...
3) Explain what is an asset , liability , capital , expense and income in
a business
...
2
BUSINESS : Friend’s Café
...

RIGHT PLACE : ABC University , London
...

CHEF : benefits already taken during the months so salary will be
provided in cash it is our Expense
...

EQUIPMENTS FOR CAFÉ : Asset
...
If you read the
above notes thoroughly then you will not face any difficulty solving the
given practice questions
...


INTERNAL USERS :
➢ Owners
...

➢ Employees
...

Consumers
...

Government
...


ACCOUNTING EQUATION

ASSETS = LIABILITIES + EQUITY
You want to buy a building for your business which has a cost
$20,000 and you have $10,000 of capital or owner's equity
...
So it will be represented in the Accounting equation as :
BUILDING ($20,000) = LIABILITIES ($10,000) + CAPITAL ($10,000)

PRACTICAL IMPLEMENTATION OF THIS
CONCEPT
Q) Explain accounting equation in a business which you have started ?
A) $500,000 are initially required to start a business
...
We need $200,000
...
Then we purchase the building
...


The sum of liabilities and owner’s equity is always equal to the
total amount of assets
...


HEAD OR CHARTS OF ACCOUNTS AND THEIR
TYPES
A company’s Chart of Accounts is a list of all asset ,
liability , equity , revenue , and expense accounts included in the
companies
...
A small family run
business may only have 20 total accounts
...


The following numbering system would be similar to
that of a midsized business
...

The following are examples of Expense accounts :

501
Amortization expense
502
Depletion expense
503
Depreciation expense – Automobiles
504
Depreciation expense – Building
505
Depreciation expense – Furniture
505 Depreciation expense – Land improvements
507
Depreciation expense – Library
508
Depreciation expense – Machinery
509 Depreciation expense – Mineral deposit
510 Depreciation expense – Office equipment
511
Depreciation expense – Trucks
520
Office salaries expense
521
Sales salaries expense
522
Salaries expense
523
“ Blank “ wages expense
524
Employees’ benefits expense
525
Payroll taxes expense
533
Interest expense
535 Insurance expense – Delivery equipment

536
540
541
542
543
544
550
551
555
559
561
562
563
566
567
568
571
573
574
576
578
579
580
581
582
582
584
585
587
590
591
595

Insurance expense – Office equipment
Rent expense
Rent expense – Office space
Rent expense – Selling space
Press rental expense
Truck rental expense
Office supplies expense
Store supplies expense
Advertising expense
Collection expense
Concessions expense
Credit card expense
Delivery expense
Equipment expense
Food and drinks expense
Gas and oil expense
General and administrative expense
Legal fees expense
Mileage expense
Miscellaneous expense
Operating expense
Organization expense
Permit expense
Postage expense
Property taxes expense
Repairs expense
Selling expense
Telephone expense
Travel and entertainment expense
Utilities expense
Warranty expense
Income taxes expense



---