Financialaccunnting.doc

Financial accunnting EasyPC Training Accounting BasicsAccounting Basics Page 2 Business Administration Contents Accounting Basics 3 The Accounting Equation 3 Assets 3 Liabilities 3 Owner’s Equity 3 The Balance Sheet 5 Double Entry Bookkeeping 6 Ledger Accounts 6 Trial Balance 7 Profit and Loss account 8 Sales 8 Cost of Sales 9 Expenses 9 Reporting Period Conversion Period10 Conversion partway through year10 Other conversion issues10 Glossary12Accounting Basics Page 3 Business Administration Accounting Basics This booklet is designed to give the reader an overview of general bookkeeping practices and accounting terminology, in preparation for EasyPC Training’s MYOB accounting or manual bookkeeping courses. As you read through, please note that words or phrases underlined appear in a glossary at the back of the booklet The Accounting Equation All accounting entries in the books of account for an organisation have a relationship based on the ‘accounting equation’: Assets = Liabilities + Owner’s equity Assets Assets are tangible and intangible items of value which the business owns. Examples of assets are: · Cash · Cars · Buildings · Machinery · Furniture · Debtors (money owed from customers) · Stock / Inventory Liabilities Liabilities are those items which are owed by the business to bodies outside of the business. Examples of liabilities are: · Loans to banks · Creditors (money owed to suppliers) · Bank overdrafts Owner’s Equity The simplest way to understand the accounting equation is to understand what makes up ‘owner’s equity’.Accounting Basics Page 4 Business Administration By rearranging the accounting equation you can see that Owner’s Equity is made up of Assets and Liabilities. Owner’s Equity = Total Assets less Total Liabilities Owner’s Equity can also be expressed as: Owner’s Equity = Capital invested by owner + Profits (Losses) to date (also known as ‘Retained Earnings ’) Rearranging the equation again, therefore: Total Assets - Total Liabilities =