ADB Grant No.0133-CAM/Component 1: PFMRD ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Day 1: May 04, 2010

ADB Grant No.0133-CAM/Component 1: PFMRD

ADB Grant 0133-CAM: Public Financial Management in Rural Development

Ministries (Component 1)

Day 1: May 04, 2010Accounting Concepts and Procedures

Basic Accounting, Basic Accounting, May 04 - 07, 2010May 04 - 07, 2010Basic Accounting, Basic Accounting, May 04 - 07, 2010May 04 - 07, 2010



Content1. Accounting concepts2. The Accounting Equation3. Assets, Liabilities, Revenues and Expenses4. The Double Entry accounting system5. Debits and credits

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Session 1Accounting concepts and procedures



1.Accounting Concepts

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• Language of business• Provides information to…

– Managers– Owners– Investors– Governmental agencies




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Business OrganizationsSole proprietorship – one ownerPartnership – at least two ownersCompany/Corporation – owned by shareholders




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Business Classifications (Value Chain)•Production•Processing•Manufacturing•Merchandising•Servicing•Wholesaling•Retailing


Analyze Record Classify

Summarize

DecisionMakers

Interpret Report

1.Accounting ConceptsAccounting Process


COMPARISON BETWEEN COMPUTERIZED ACCOUNTING

ANDMANUAL ACCOUNTING


General Manual Accounting System Computerized Accounting System

Record transactions in manual record and then computerized accounting system• General Journal Entries (both manual and computerized accounting system)• Receipt Journals for cash and bank (computerized accounting system)• Payment Journals for cash and bank (computerized accounting system)

Complete month-end procedures checklist

Print out reports from computer and put them in the required format

Analyze transactions

Manually record transactions in appropriate journal

Manually prepare Trial Balance

Manually prepare financial statements and put them in the required format

Manually post transactions to correspondence ledger accounts

Analyze transactions




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IGAAPIGAAP::

International Generally Accepted International Generally Accepted Accounting Principles/PracticesAccounting Principles/Practices – –

Procedures and guidelines that must be followed during the accounting process


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Country / Region

Application of IAS / IFRS

European Union All listed companies required to use IFRS since 2005.Non-listed companies have a choice.

USA Foreign listed companies allowed since 2008.Domestic listed companies must use US GAAP until 2010. Full adoption of IFRS by 2014.

Australia Local standards based on IFRS with minor differences. Compliance with Australian standards is also fully compliant with IFRS.

Malaysia Local standards similar to IFRS.Planned full adoption of IFRS by 2012.


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ADB Grant No.0133-CAM/Component 1: PFMRD 12

Assets = Equities

Properties (resources) of value owned by a firm

Financial claims against the assets

2.The Accounting EquationsRecording transactions in the basic accounting equation.



2.The Accounting Equation (Cont.)

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Assets = Liabilities + Owner’s Equity

Rights of creditors Rights of owner

Traditionally, one effect is referred to as the debit side (abbreviated to Dr) and the other as the credit side of the entry (abbreviated to Cr).



3.Assets,Liabilities,Revenues and Expenses

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Balance Sheet • Reports financial position of a company as

of a particular date• Presents ending balances in assets,

liabilities, and owner’s equity


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3.1. Assets

DefinitionA resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

RecognitionRecognized when It is probable future economic benefits will flow in and the asset has a cost or value that can be measured reliably.


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3.2. Liabilities

DefinitionAn entity’s obligations to transfer economic benefits as a result of past transactions or events.

RecognitionRecognized when it is probable that an outflow of resources in the form of economic benefits will result from settlement of an obligation and the amount of settlement can be measured reliably.


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3.3. Income

DefinitionIncome increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants.

RecognitionRecognized when there is an increase in future economic benefits due to an increase in assets or a decrease in liabilities that can be measured reliably


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3.4. Expenses

DefinitionExpenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

RecognitionRecognized when there is a decrease in future economic benefits due to a decrease in assets or an increase in liabilities that can be measured reliably.



3.Assets,Liabilities,Revenues and Expenses (cont..)

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Total liabilities & owner’s equity $48,000

Jingle Cleaners

Balance Sheet

November 30, 200XAssets

Cash $40,000

Cleaning equipment 8,000

Liabilities & Owner’s Equity

Liabilities

Accounts payable $19,000

Owner’s Equity

J. Jingle, capital

Total Assets $48,000

Assets - Liabilities = Owner’s Equity$48,000 - $19,000 = ?? 29,000



4.The Double entry accounting system (Cont..)

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Liabilities

Cash +Accounts

Rec. +Computer

Equip. =Accounts Payable +

B. Bell, Capital -

B. Bell, W/D + Revenue - Expense

Assets Owner's Equity

$60,000 $60,000$7,000b.

a.$7,000

$60,000 $60,000$7,000 $7,000

Assets = $67,000 Equities = $67,000




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Liabilities

Cash +Accounts

Rec. +Computer


B. Bell, Capital -



- 200 - 200

14,000d.

c.

$14,000

$60,000 $60,000$7,000 $7,000


$59,800 $60,000$7,000 $7,000 - $200

$73,800 $60,000$7,000 $7,000 - $200$14,000





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Liabilities

Cash +Accounts

Rec. +Computer


B. Bell, Capital -



$30,000 30,000

- 4,000f.

e.

- 4,000

$73,800 $60,000$7,000 $7,000

Assets = $110,800 Equities = $110,800

$73,800 $60,000$7,000 $7,000 - $200

$69,800 $60,000$7,000 $7,000 -$4,200$44,000

Assets = $106,800 Equities = $106,800

$14,000 - $200

$30,000 $44,000

$30,000




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Liabilities

Cash +Accounts

Rec. +Computer


B. Bell, Capital -



- 1,500g. - 1,500$69,800 $60,000$7,000 $7,000

Assets = $105,300 Equities = $105,300

$68,300 $60,000$7,000 $7,000 - $5,700

$44,000 - $4,200

$30,000 $44,000

$30,000



5.Debits and Credits

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Assets = Liabilities + Owner’s EquityDr. Cr. Dr. Cr. Dr. Cr.

+ - +- +-



5.Debits and Credits (Cont…)

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Dr. Cr.

ExpensesDr. Cr.

+ -

RevenuesDr. Cr.

+-

+-

WithdrawalsDr. Cr.

+ -




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Recording cash transactionsShow the following transactions in ledger accounts: (Tip: the ledger accounts you need are Bank, Rent, Drawings, and Sales)

(1) Kamran pays $80 for rent by cheque.(2) Kamran sells goods for $230 cash which he banks.(3) He then takes $70 out of the business for his personal living expenses.(4) Kamran sells more goods for cash, receiving $3,400.




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Bank

$ $

Sales (2) 230 Rent (1) 80

Sales (4) 3,400 Drawings (3) 70

Sales

$ $

Bank (2) 230

Bank (4) 3,400

Rent

$ $

Bank (1) 80

Drawings

$ $

Bank (3) 70




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Example 2 for double entry(1) Buys goods for cash for $380.(2) Pays $20 in sundry expenses.(3) Makes $1,000 in sales.(4) Receives a bank loan of $5,000.(5) Pays $2,600 for fixtures and fittings.

What is the total entry to the credit side of the cash T account?

Documents

ADB Grant No.0133-CAM/Component 1: PFMRD ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Day 1: May 04, 2010