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Accounting Fundamentals

The document outlines the fundamentals of accounting, including the processes of bookkeeping, financial statements, and the roles of internal and external users. It explains different business structures such as proprietorships, partnerships, and corporations, as well as key accounting concepts like assets, liabilities, and owner's equity. Additionally, it covers financial ratios, budgeting, and the importance of financial planning and performance management in accounting.

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Rubel Khan
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12 views

Accounting Fundamentals

The document outlines the fundamentals of accounting, including the processes of bookkeeping, financial statements, and the roles of internal and external users. It explains different business structures such as proprietorships, partnerships, and corporations, as well as key accounting concepts like assets, liabilities, and owner's equity. Additionally, it covers financial ratios, budgeting, and the importance of financial planning and performance management in accounting.

Uploaded by

Rubel Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Accounting Fundamentals

TA - Accounting & Auditing Courses

Author : Mohamed Tarek Tolba CMA


TA - Accounting & Auditing Courses .
You should understand that the accounting process includes
the bookkeeping function. Bookkeeping usually involves only
the recording of economic events ($) . In total, accounting
involves the entire process of identifying, recording, and
communicating economic events to the users .
Internal users include management , employees , Labors and directors .
External users are individuals and organizations outside a company such as
Customers , Suppliers , investors and creditors .
PROPRIETORSHIP A business owned by one person / one owner.
PARTNERSHIP A business owned by two or more persons associated as
partners is a partnership.
CORPORATION A business organized as a separate legal entity under
state corporation law and having ownership divided into transferable
shares of stock is a corporation.
A Joint Venture ( JV ) : consists of two or more business entities that associate to
accomplish a business purpose .
NonProfit Businesses : formed to provide public benefits such as Charities ( 57357
Hospital ) .
100,000 $ = 30,000 $ + 70,000 $
Assets : are resources a business owns. For example, consider Campus Pizza, a local restaurant. It owns
a delivery truck that provides economic benefits from delivering pizzas. Other assets of Campus Pizza
are tables, chairs, inventory and computers .
Liabilities : existing debts and obligations. Businesses of all sizes usually borrow money and purchase
inventory on credit or take a loan .
Owner’s Equity : The ownership claim on total assets is owner’s equity. It is equal to total assets minus
total liabilities. ( Owner's Equity = Assets – Liabilities ) .
70,000 = 100,000 - 30000

Revenues : Generally, revenues result from selling merchandise, performing


services.
Expenses : For example, Campus Pizza recognizes the following expenses: cost of
ingredients , salaries and wages expense; utilities expense (electric – water – Gas )
Mohamed borrowed 1,000 $ from Ali .

Debit Side ( the taker ) Credit side ( the giver )


• Mohamed 1,000 $ • Ali 1,000 $
* the entity purchased
inventory by 2,000 $ in
cash . Inventory
Inventory “ debit” “ debit”
2,000 $
2,000 $
Cash
“ credit”
Cash “ credit” 2,000 $
2,000 $
*the entity borrowed
5,000 $ from QNB
bank .
Cash “ debit side “
5,000 $

Loans - QNB bank “


credit side “
5,000 $
- the entity paid the
loan plus the interest
expense 500 $ .
Loans – QNB Bank “
Debit side “ 5,000 $
Interest expense “
debit side “ 500 $

Cash “ credit side “


5,500 $
- The entity paid 2,000
$ salaries and 2,500 $
rent fees in cash .
Salaries / wages Expense
2,000 $ - DEBIT
Rent Fees Expense
2,500 $ -DEBIT

Cash
4,500 $ - CREDIT
(2000+2500)
-the entity purchased from Toyota
equipment by 10,000 $ on Account
and receive 1,000 $ cash as a
revenue from the customer whose
received the goods .
Equipment 10,000 $
Cash 1,000 $

Creditors/Accounts
payable “Toyota”
10,000 $
Revenues
1,000 $
5$ =2$+3$
5$ =1$+4$
3$ =0$+3$
The Accounting Cycle !
The Trial Balance
1- The Income Statement .
2- Balance Sheet .
3- Statement of Retained Earnings / Changes in Owners Equity .
Record – Post – Prepare Trial Balance – Prepare Financial Statements.
Income Statement - Apple
The balance Sheet ( Components )
Current ( Short Term Assets )
Non Current ( Fixed or Long Term Assets )
Assets ( Current Vs Non-Current )
Liabilities = Debts = Obligations
Balance Sheet
Owners Equity = Shareholder's Equity
Equity = Assets - Liabilities .
7 $ = 10 $ - 3$ .
Tangible Vs Intangible Assets .
Pre-Paid Expenses “ Assets “ !
Are paid in advance and benefit more than accounting period . (example : the entity
paid the headquarters rental fees 3 years in advance .
For Example : the entity paid 300,000 $ Cash for the headquarters
rental fees 3 years in advance .

Prepaid Expenses- Rental fees - Assets “ Debit Side “ 300,000 $


Cash - Assets “ Credit Side “ 300,000 $
Accrued Expenses - Liabilities !
Example : The entity didn’t pay the last month salaries equal to
120,000 $ .

Salaries Expense 120,000 $

Accrued Salaries – Current Liabilities 120,000 $


Financial Statements Brief -
Deferred Revenue = Unearned Revenue
is recognized when a customer pays for a product or
service that has not yet been delivered .
Deferred Revenue Example : Egypt Airlines usually received
payments from the customers to book the flight tickets .
Equity “ Elements “
Common Shareholders : are the owners of the corporation . They have voting
rights .
Preferred Stock : they have fixed charged ( similar to debt ) but payment of
the dividends ( the fixed charge ) is not an obligation .
Additional Paid In Capital ( APIC) : the amount paid above the share par value .
Treasury Stock : is the entity's own stock that was repurchased by the entity
again .
Retained Earnings : the sum of the entity prior periods after deduct any
dividends .
Dividends : the distributed earnings to owners maybe cash dividends or stock
dividends or fixed assets or other current assets .
Other Comprehensive income : the items that not included in the income
statement .
CMA ( Certified Management Accountant )
Financial planning, performance,
and analytics. ( CMA – Part 1 )

External financial reporting decisions 15%


Planning, budgeting, and forecasting 20%
Performance management 20%
Cost management 15%
Internal controls 15%
Technology and analytics 15%
Strategic financial management – CMA - Part2

Financial statement analysis 20 %


Corporate finance 20 %
Decision analysis 25 %
Risk management 10 %
Investment decisions 10 %
Professional ethics 15 %
Why We Are Preparing Budgets ?
1-manage your money effectively
2-allocate appropriate resources to projects
3-monitor performance
4-meet your objectives
5-improve decision-making
6-identify problems before they occur - such as the need
to raise finance or cashflow difficulties
7-plan for the future
8-increase staff motivation
Fixed Vs Variable Costs !
Direct Vs Indirect Costs !
Manufacturing Vs Non-Manufacturing Costs
Product Costs Vs Period Costs
Prime Costs : Direct Materials + Direct labor .
Conversion Costs : Direct Labor + Manufacturing
Overheads .
Accounts Receivables “ Current Assets “
Inventory “ Current Assets “
Property , Plant and Equipment ( PPE )
Fixed Non-Current Assets ( Tangible / Intangible )
Accounts Payables - Current Liabilities
Purchases On Account
Bonds - Non Current – Liabilities
Treasury – Bills - Current Liabilities
Loans ( Current / Non-Current Debts)
Financial Ratios
Current Ratio = Current Assets / Current liabilities .
Current Assets = 100 $
Current Liabilities = 50 $
So Current Ratio = 100 / 50 = 2
Debt Ratio = Total Debt / Total Assets .
Return On Assets = Net Income / Total or Average Assets .
Payout Ratio = Dividends Per Share / Earnings Per Share .
The Entity Paid Dividends per share 5 $ from 20 $ earnings per share
this year
so PayOut Ratio = 5 / 20 = 0.25 Or 25 %

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