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1 Introduction to Accounting

By Vernon Russell,2014-05-05 12:08
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Introduction to Accounting

1 Introduction to Accounting

I. What is accounting?

    ? Accounting mainly concerns financial data. It includes 4 phases:

    ? Recording of transactions (or financial data)

    ? Classification of the records

    ? Analysis of the records

    ? Interpretation of the records

II. Users of Accounting Information

    ? Owner of a business needs accounting information for reasons such as:

    ? He wants to see whether the business is profitable.

    ? If he wants to borrow money from a bank, he needs to show the accounting information of the

    business.

    ? When he wants to sell the business or have someone else to join his company, he needs to let hat

    person examine the accounting information of the business.

    ? Other people may need the information of a business. They include:

    Lenders (e.g. bank) Tax inspectors

    Potential buyers Employees

    Potential investors

III. What is book-keeping ?

    The data recording phase of the accounting is called Book-keeping

    A book-keepers work includes: 1. Within the accounting period

    ? Collecting data & keeping documents

    ? Entering the data into day books

    ? Posting the data from day books to ledger accounts ? Prepare bank reconciliation statements

    ? Prepare control accounts

2. At the end of the accounting period

    ? Balancing off all ledger accounts

    ? Prepare a trail balance

    ? Making corrections & setting up a suspense account ? Making year end adjustments

    ? Preparing a second trial balance

    ? Preparing a trading, profit and loss account to find the net profit / loss. ? Preparing a balance sheet to list out all the asset, capital, and liability account balances.

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