Accounting chapter 1 summary PDF

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Accounting chapter 1 summary...

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CHAPTER 1 SUMMARY Accounting is the collection and recording of financial data, and the reporting, analysis and interpretation of financial information Purpose of accounting: To provide financial information to assist decision-making Factors that influence success of business: -Consumer tastes and demand -Level of competition -Quality of their staff/ employees -Economic climate -Management skills of the owners Financial data: Raw facts and figures upon which financial information is based Financial information: Financial data that has been sorted, classified and summarised into a more useable and understandable form Transaction: An exchange of goods and services with another party

THE ACCOUNTING PROCESS 1. Collecting source documents —> 2. Recording —> 3. Reporting —> 4. Advice 1. Source documents provide evidence that a transaction has occurred and the details of the transaction itself (input stage) TYPES OF SOURCE DOCUMENTS -Receipts -Cheque butts -Invoices -Memos 2. Sorting, classifying and summarising the data contained in the source documents so that it is more useable COMMON ACCOUNTING RECORDS -Journals -Ledgers -Stock cards -Subsidiary records

3. The preparation of financial statements that communicate financial information to the owner (output stage) REPORTS THAT ALL BUSINESS SHOULD PREPARE -Cash flow statement -Income statement -Balance sheet 4. The accountant should be able to offer advice by making some suggestions about an appropriate course of action or presenting owners with a range of options from which they can choose After recording in Journals is done ledgers are then made followed by balance day adjustments and reports

ACCOUNTING CHAPTER 2 SUMMARY Assets= Liabilities + Owners Equity If the left hand side of the accounting equation increases its a DEBIT If the right hand side of the accounting equation increases its a CREDIT

DOUBLE ENTRY ACCOUNTING System that records two effects on the accounting equation as a result of each transaction Rules of double entry accounting: 1. Every transaction will affect at least two items in the accounting equation 2. After recording these changes, the accounting equation must still balance

TYPE OF ACCOUNT

INCREASE

DECREASE

Asset

Debit

Credit

Liability

Credit

Debit

Owners Equity

Credit

Debit

Revenue

Credit

Debit

Expense

Debit

Credit...