Definitions accounting

• Investments


  The completion of the accounting process = Adjustments + Closing Journal Entries. This is where the Prepayments and accruals arise
• Accounting Classifications


  • Creating a 'bad debt expense' account and writing off bad debts and creating a 'provision for bad debts account'
  • The completion of the accounting process = Adjustments + Closing Journal Entries. This is where the Prepayments and accruals arise
  • Presentation of AFS's
• It is very important to be familiar with the following definitions as you will be making use of them continuously throughout your studies of financial accounting.
• Assets


  • Resources controlled by an entity resulting from past events out of which future economic benefits will flow. There are two categories of asset:
  • Non-current assets: An item of value with a lifespan of more than one year, for example: buildings and vehicles. This includes property, plant and equipment, intangible assets and financial assets.
  • Current assets: An item of value with a lifespan of less than one year, which is easily converted to cash, for example cash in the bank and debtors.
• Liabilities


  • Present obligations resulting from past events, the settlement of which leads to decreases in economic benefits. There are two categories of liabilities:
  • Non-current liabilities: Obligations of the business which are payable over a period of more than one year, for example a bond from the bank on a property.
  • Current liabilities: Obligations of the business which are payable within one year, for example bank overdraft and creditors.
• Net asset value


  Total assets - Total liabilities = Solvency
• Net Working Capital


  Current assets - Current liabilities = Liquidity
• Owner's equity


  The interest of the owner in the business, for example capital contribution and drawings.
• Income


  Receipts by a business for its normal operations, for example sales, fees earned, rent received, and interest received. These increase economic benefit within a current period.
• Expenses


  Amounts spent by a business during its normal operations (but excluding capital expenses), for example rent paid, advertising, salaries and insurance. These decrease economic benefit within a current period.
• The Accounting Cycle

  1. Analyze transactions to determine economic impact on accounting equation

  2. Record external transactions in journal

  3. Post to the ledger accounts

  4. Summarize information by preparing a pre-adjusted trial balance

  5. Adjust the accounts

  6. Prepare the post-adjustment trial balance

  7. Close the accounts

  8. Record closing entries in journal

  9. Transfer closing JE's to Ledger accounts

  10. Prepare CSI - Comp. Statement of Income

  11. Prepare SCIE - Statement of Changes in Equity

  12. Prepare SOFP - Statement of Fin. Position