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Accounting Revision Notes

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Introduction

Accounting Notes Accounting: the process of gathering and preparing financial information about a business in a form that provides accurate and useful records and enables decisions to be made. 5 main activities involved in accounting: 1. Gathering financial information about the activities of a business. 2. Preparing and collecting permanent records. Records provide evidence of purchase and proof of payment, etc. 3. Rearranging/Summarizing/ Classifying financial information into a more useable form. 4. Preparing information reports and summaries for the following purposes: a) Help management reach decisions. b) To serve the needs of outside groups (i.e. Bankers, investors). c) To measure profitability. 5. Establishing controls to promote accuracy and honesty among the employees. As a business grows, owners can no longer look after everything. As soon as employees are hired, accounting controls are essential. Why study Accounting? 1. Accounting on the job. 2. Accounting in daily life. 3. Owning your own business. 4. Accounting as a profession: Professional Designations in Accounting: a) CA - Chartered Accountant. b) CGA - Certified General Accountant. c) CMA - Certifies Management Accountant. Asset: Anything owned that has a dollar value. E.g. Money, Property, Inventory. Liabilities: A debt of an individual, business or other organizations. E.g. Rent, Mortgage, Loan, Tax Owners Equity: The total assets minus the total liabilities is equal the capital or equity. E.g. Profit, Loss, Capital. A-L=OE What does Balance Sheet mean? A financial statement that summarizes a company's assets, liabilities and shareholders equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. The balance sheet must follow the formula: Assets = Liabilities + Shareholder's Equity Generally Accepted Accounting Principles GAAP-What are They? Standard Rules and Guidelines for Accounting The Business Entity Concept The business entity concept provides that the accounting for a business organization must be kept separate from the personal affairs of its owner, or from any other business or organizations.

Middle

Record the date: record the transaction date. 3. Enter the amount: Record the correct amount in the column 4. Calculate the new balance: determine the new balance and whether or not the balance is a debit or a credit 5. Complete the Ledger posting Reference Column: Enter the journal page number from which it was posted in the (P.R) column of the ledger account. The page number is proceeded by the letter J (Journal) and a number (journal page number) 6. Copy the account number from the ledger account into the posting reference column of the general journal. This shows that the amount has been posted from the ledger to the general journal. Determining Account Balances * The balance-column form of account provides a balance after each transaction. * The DR/CR column indicates whether the balance is a debit or a credit * There is less chance of error in the balance-column form of account than in a T-Account Correcting Errors into the Books Errors found immediately * If the error is found immediately, simply stroke neatly through the incorrect figures or letters and write in the correct ones immediately. Errors found later on * In many cases, the error can be corrected by means of an accounting entry, reversing entry * A correcting journal entry is an accounting entry that cancels the effect on an error * For example, a journal entry for $20 was incorrectly debited to the cash account. The debit for $250 should have been applied to A/R. (Correct entry from July 2). Account title: The account name Balance Column Account: The most commonly used type of account, in which there are three money columns, one for the debit amounts, one for the credit amounts, and one for the amount of the balance. Correcting Journal Entry: An accounting entry to rectify the effect of an error. Cross-Referencing: Part of the posting sequence in which the journal page number for a given entry is recorded in the appropriate account, and the account number, in turn, is recorded on the journal page.

Conclusion

Duty: Special charges imposed by the government of a country on certain goods imported from a foreign country. Factory Overhead: Costs that include a range of expenses that support the manufacturing process. Freight-In Account: transportation charges on incoming merchandise. Goods in Process: goods that have had some raw materials, direct labour, or factory overhead applied to them, but that are not yet in a finished state. Gross profit: in a trading business, the excess of net sales over the cost of goods sold. Indirect Labour: an account that represents wages to workers who support the manufacturing process, for example, janitorial staff. Manufacturing Business: a business that buys raw materials which it converts into new products and sells to earn a profit. Manufacturing Statement: accounting form that shows the cost of manufacturing goods in a fiscal period. Merchandise Inventory: the goods handled by a merchandising business. Merchandise Business: a business that buys goods to resell them at a profit. Periodic Inventory System: a method of accounting for merchandise inventory in which the cost of the inventory sold is determined only at the end of an accounting period. Perpetual Inventory System: a method of accounting for merchandise inventory in which the record of items in stock is kept up to date on a daily basis. Physical Inventory: the procedure by which the unsold goods of a merchandising business are counted and valued at the end of a fiscal period. Raw Materials: essential components that become part of a finished product. Retailer: a merchandising that buys goods from wholesalers and manufacturers and sells them to the general public with a view to making a profit. Stock-in trade: the goods handled by a merchandising business. Terms of sale: the conditions agreed to at the time of sale, between the buyer and the seller, in respect to the length of time allowed for payment and whether a cash discount can be taken. Wholesaler: a merchandising business that buys goods from manufacturers and other suppliers and sells them to retailers with a view to making a profit.

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