1- financial accounting

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Introduction


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Index Introduction to Accounting.

Definitions of financial statements.

Types of companies.

Nature of Accounting processes.

AccountingCycle.

Capital formation.

Purchases and Sales.

Notes Receivable and Notes Payable.

Letter of Credit

Bank reconciliation

How to prepare Financial Statements.

Exercises.


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Introduction to AccountingAccounting

The purpose of accounting

The users of financial statements


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Definitions of financial statementsIncome Statement

(

Revenues - Expenses = Net Profit (Net Loss)

.


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Balance Sheet

ssets = Liabilities + Owners Equity

.

)


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Statement of Changes in Owners Equity

.

Statement of Cash Flow

.

Operating activities

Investing activities

.

Financial activities


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Types of companies

Joint StockCompany

Limited Partnership in Shares

.

Limited Liability Company

Limited Partnership

.

Partnership Company

.

Subcontractor Company

Sole Proprietorship


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Nature of accounting processesOne could say that of accounting consists of 4 major accounts are

Assets -Liabilities - Revenue - Expenses.

Each account in the establishment falls under the four key accounts.

Balance Sheet Income Statement

Assets Liabilities Revenue Expenses

Credit

DebitSo we can say

Des. Dr. Cr.

Assets Expenses + -

Liabilities Revenue - +

For Example

- The company has bought a car worth L.E 50000 by cash onhand.

Car Cash

Assets Assets Dr. Fixed Assets(Car) 50000

+ - Cr. Cash 50000

Dr. Cr. (Purchase Fixed Assets by cash)


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Accounting Cycle

AccountingCycle

Source

Documents

Journals

LedgerTrial

Balance

Financial

Statements


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Capital formationThere are three types of capital proof:

1- Capital Formation by Cash / Bank:

Dr. Cash / Bank

Cr. Capital

2- Capital Formation by Fixed Asset:

Dr. Fixed Asset

Cr. Capital

3- Capital Formation by Fixed Asset and Liabilities:

Dr. Fixed Asset

Cr.

CapitalLiabilities

For Example:

- Ahmed Presented to the partnership car Worth 50000 and he

was a loan by 15000.

Dr. Fixed Assets (Car)50,000

Cr. Capital 35000

Liabilities (Loan) 15000

(Capital Formation by Fixed Asset and Liabilities)


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Purchases and Sales

Purchases=Sales returns (Debit)

Sales =Purchases returns (Credit)

Purchases on Account

Dr. Purchases

Cr. Accounts Payable(Vendor Name)

Purchases Return

Dr. Accounts Payable(Vendor Name)

Cr. Purchases Return

Cash Payment

Dr. Accounts Payable (Vendor Name)

Cr. Cash


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Sales on AccountDr. Accounts Receivable(Customer Name)

Cr. Sales

Sales Return

Dr. Sales Return

Cr. Accounts Receivable (Customer Name)

Cash Receipt

Dr. Cash

Cr. Accounts Receivable (Customer Name)

Withdrawals (Withdraw)

The owner withdraws for personal use:

Dr. Drawings

Cr. Purchases (Goods cost prices)

Sales (Goods sales prices)

Assets (The name of assets)

Cash (By Cash)


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Notes Receivable and Notes Payable

Notes Receivable =Customers (Debit)

Notes Payable =Suppliers (Credit)

Notes Receivable

- It is a result of incoming checks of the facility as a result of a process

the sale and collection in order to later.

.

Purchases on Account

Dr. Purchases

Cr. Accounts Payable(Vendor Name)

Check WriteDr. Accounts Payable(Vendor Name)

Cr. Notes Payable(Check Number)

Cash Payment

Dr. Notes Payable (Check Number)

Cr. Bank


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Notes Payable

- It is a checks issued from the facility as a result of a process

purchase and payment in order to later.

.

Sales on AccountDr. Accounts Receivable(Customer Name)

Cr. Sales

CheckReceive

Dr. Notes Receivable

Cr. Accounts Receivable(Customer Name)

Send Check to Bank

Dr. Checks under collection

Cr. Notes Receivable

Deposit in the Bank

Dr. Bank

Cr. Checks under collection


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Letter of Credit

L.C that means a letter of credit and it is opened when we import or

export from abroad. And is closed at the end of the period by

reversing the accounting entry. The letter of credit is placed in assets

as long as the formal accounting entry opens.

Cost of LCs:-

1-Invoice value.

2-Bank commission.

3-Custom duty.

4- Customs broker Fees.

5-Transportation in.

Invoice Value may be:-

1-CIF "Cost Insurance Freight".

2-CF "Cost Freight".

3-FOB "Free On Board".


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Bank reconciliation

Note:-

Balance Per Accounting Records and Adjusted Bank Balance should be equal.

Bank Reconciliation

Balance Per Bank Statement xxx

Adjustments:

Add: Deposits in transit xx

Deduct: Outstanding checks xx

Add or Deduct: Bank errors (x) or x

Adjusted/Corrected Balance per Bank xxxx

Balance per Books xxx

Adjustments:

Deduct: Bank service charges xx

Deduct: NSF checks & fees xx

Deduct: Check printing charges xx

Add: Interest earned xx

Add: Notes Receivable collected by bank xx

Add or Deduct: Errors in company's Cash account (x) or x

Adjusted/Corrected Balance per Books xxxx


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Financial Statements- The first step in financial statement is trial balance:-

Trial balanceDecember 31, 2015

Des.Beginning balance Transactions Total Balance

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash at banks

Accounts Receivable

Notes receivable

Prepaid expenses

Accounts Payable

Notes payable

Prepaid revenue

Total

31/2015

.

Total


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20153120151

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= ( + ) X

X

= ( + ) X

X

X X

X X

X

X

X

X

X X

X

X X

X

X X


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Income statement

From 1 January 2015To 31 December 201

5

1025 Description

X Net Sales= Sales - (Sales Returns + Sales Discounts)

X Beginning inventory

X Net Purchases= Purchases(Purchase Returns + Purchase Discounts)

X Ending inventory

X X Cost of sales

X X Gross profit

X General Expenses

X Administrative Expenses

X Marketing Expenses

X Depreciation Expenses

X X Net Profit before Interest and Tax

X Interest ( Dr. )

X X Net Profit before Income Tax

X Income Tax

X X Net Profit after Interest and Income Tax


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+

=

Cost of Goods Available for Sale = Beginning inventory + Net purchases

=

Ending inventory =Cost of Goods Available for Sale - Cost of sales

+=

Cost of sales = Beginning inventory + Net purchases - Ending inventory

=

Gross profit = Net Sales - Cost of sales

=

Net Profit before interest and tax =

Gross profit - General exp. -Administrative exp. - Marketing Exp. -Dep.

=

Net Profit before tax = Net Profit before interest and tax Interest

=

Net Profit after interest and tax =Net Profit before tax Tax


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Assets = Liabilities + Owners Equity

1000,000 = 400,000 + 600,000

Owners Equity = Assets - Liabilities

600,000 = 1000,000 - 400,000

=

Working capital= Total Current Assets - Total Current Liabilities

+=

Total investment = Total Long Term Assets + Working Capital

=

+

Total Owners Equity and Long Terms Liabilities=

Total Owners Equity + Total Long Terms Liabilities

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