MANAGEMENT

ACCOUNTING
ORGANISATION
• NEED FUND TO RUN BUSINESS

• COLLECT FUND TO BUY ASSETS

• ASSET= LIABILITY+ CAPITAL
 STAKE HOLDER OF ORGANISATION
Stakeholders: Stakeholder's concerns:
taxation, GST, employment, truthful reporting, legalities,
Government
externalities...
rates of pay, job security, compensation, respect, truthful
Employees/ Management communication, appreciation, acknowledgement,
recognition.
Customers value, quality, customer care, ethical products.

providers of products and services used in the end product

Suppliers
for the customer, equitable business opportunities.

Creditors credit score, new contracts, liquidity.

jobs, involvement, environmental protection, shares,
Community
truthful communication.
Trade unions quality, worker protection, jobs.

profitability, longevity, market share, market standing,

Owner(s)
succession planning, raising capital, growth, social goals.

Investors return on investment, income.

FINANCIAL REPORTING
• Financial Reporting involves the disclosure of financial information to the
various stakeholders about the financial performance and financial position
of the organization over a specified period of time.
• Financial statement analysis
• It is used for decision-making purposes.
• It is used to understand the overall health of an organization as well as to
evaluate financial performance and business value.
• IT can be used as a monitoring tool for managing the finances.
• The financial statements of a company record important financial data on
every aspect of a business’s activities. As such they can be evaluated on the
basis of past, current, and projected performance.
• In general, financial statements are prepared based on generally
accepted accounting principles (GAAP)
• Three main financial statements: the balance sheet,
• The income statement,
• The cash flow statement
• Financial Statement Analysis- Ratio analysis
• Asset= fixed asset and current assets

• RAW MATERIALS- WORK IN PROCESS- FINISHED GOODS- DEBTORS-

CASH
 Assets
• 1. Current Assets
Current assets are assets that can be easily converted into cash and cash equivalents (typically within a year). Current assets are also
termed liquid assets and examples of such are:
Cash /Cash equivalents/Short-term deposits/Accounts receivables/Inventory/Marketable securities

2. Fixed or Non-Current Assets

• Non-current assets are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are
also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:
• Land
• Building
• Machinery
• Equipment
• Patents
• Trademarks
• Current liabilities (short-term liabilities) are liabilities that are due and payable within one year.
Interest payable
• Account payable/creditors
• Income taxes payable
• Bills payable
• Bank account overdrafts
• Accrued expenses
• Short-term loans

• Non-current liabilities (long-term liabilities) are liabilities that are due after a year or more.
Bond/ loan
• Contingent liabilities are liabilities that may or may not arise, depending on a certain event.
•
Generally Accepted Accounting Principles (GAAP)
• Business Entity Assumption: It states that every business entity
should be treated as an entity that is separate from its owners.

• Monetary Unit Assumption: All the financial transactions of a

business should be capable of being expressed in a monetary unit.

• Accounting Period: This principle entails that the accounting process

of a business should be completed within a certain time period which
is usually a financial year or a calendar year.
• Historical Cost Concept: As a general rule, when certain economic
resources or assets are acquired by an enterprise, they are recorded as per
the cash or cash equivalent actually spent to acquire that resource or asset
on the transaction date – even if the transaction happened the previous
day or ten years ago.
• Going Concern Assumption: The business entity is assumed to be a going
concern, i.e., it will continue to operate for an indefinite amount of time.
Full
• Disclosure Principle: An accounting entry may not independently be able
to provide all the relevant information relating to the transaction. Hence
the full disclosure principle requires the entity to disclose all the financial
information relevant to the investor/user to assist him in decision making
• Matching Concept: This concept requires the revenue for a particular
period to be matched with its corresponding expenditure so as to
show the true profit for the period.
• Accrual Basis of Accounting: This principle requires all revenue and
expenditure to be recorded in the period it is actually incurred and
not when cash or cash equivalent has been received/spent.
• Dual Aspect Concept:
• It basically is one of the golden rules of accounting – for every credit,
there must be a corresponding debit. So every transaction we record
must have a two-fold effect, i.e. it will be recorded in two places. This
is the core concept of the double-entry system of accounting.
• REALISATION CONCEPT :This concept states that revenue from any business
transaction should be included in the accounting records only when it is realised.
The term realisation means creation of legal right to receive money. Selling goods
is realisation, receiving order is not.
• Consistency: An entity may decide to follow a particular accounting procedure in
relation to a series of transactions. Such accounting procedures need to be
followed consistently over the following accounting periods so as to facilitate
comparison of the results between two periods.
• Materiality: This accounting principle allows an entity to disregard another
accounting principle if the result of the same does not affect the decision making
of the user of the financial statements
• Conservatism while accounting for a particular transaction, all anticipated
expenses or losses will need to be accounted for but all potential income or gains
should not be recorded until actually earned/received. Eg BAD DEBTS
Rules for debit and credit
• Asset = L+ OE or capital
• Extended form Asset = L+ OE or capital+ Income - Expenditure

•Increase in Asset is debit JUST REMEMBER

Rules for debit and credit
 Business transaction
• Mr. John invested a capital of $15,000 into his business.
• Acquired a building for $5,000 cash for business use.
• Bought furniture for $1,500 cash for business use.
• Purchased T-shirts from a manufacturer for $3,000 cash.
• Sold T- shirts for $1,000 cash, the cost of those T-shirts were $700.
• Purchased T-shirts for $2,000 on credit.
• Sold T-shirts for $800 on credit, the cost of those shirts were $550.
• Paid $1,000 cash to his payables.
• Collected $800 cash from his receivables.
• The shirts costing $100 were stolen by someone.
• Mr. John paid $150 cash for telephone bill.
• Borrowed money amounting to $5,000 from City Bank for business purpose
INCOME STATEMENT