Accounting and finance basics.

1. 4 April 2015 Financial Accounting 1

2. Accounting
Meaning – Accounting is the process of identifying, measuring and
communicating economics information to permit informed judgments and
decisions by users of the information.
Purpose - The purpose of accounting
is to accumulate and report on financial
information about the performance,
financial position, and cash flows of a
business. This information is then used to reach decisions about how to
manage the business, or invest in it, or lend money to it.
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Accounting

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4. Godrej Industries Ltd. – Annual Report 2012-13
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Financial Statement
Definition:-
The end product of the financial accounting process is a set of reports
that are called ‘Financial Statements’.
GAAP require that three such reports be prepared to provide
business’s financial position. They are -
1) Balance Sheet
2) Income Statement
3) Cash Flow Statement

8. Basic Accounting Model
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Assets = Liabilities + Equity

9. Assets = Liabilities + Equity
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Assets = Cash + Furniture + Plant & Machinery +
Bank Balance + Trade Receivables +
Inventory
Liabilities = Bank Loan + Trade Payables +
Outstanding Expenses
Equity = Capital – Drawings + Retained Earnings +
Revenues - Expenses

10. Using accounting equation prepare balance sheet after the
transactions mentioned below:
1) Mr. Aman invested Rs. 50,000 cash in the Aman Services .
2) Bought furniture on credit Rs.10,000.
3) Paid office rent, Rs.16,500.
4) Paid creditor for furniture, Rs.5,000.
5) Took a Bank Loan, Rs.15,000.
6) Received payment from sales of services, Rs.12,000.
7) Paid salary to office assistant, Rs.5,000.
8) Withdrew cash for personal use, Rs. 4,500.
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11. 1. Mr. Aman invested Rs. 50,000 cash in the Aman Services.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
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Equity
+ 50,000
0Cash
+ 50,000
Assets = Liabilities + EquityAssets = Liabilities + Equity

12. 2. Bought furniture on credit Rs.10,000.
The accounts involve are –
a) Furniture (Assets)
b) Creditors or Trade Payables (Liabilities)
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0Creditors
+ 10,000
Furniture
+ 10,000
Assets = Liabilities + EquityAssets = Liabilities + Equity

13. 3. Paid Office Rent, Rs.16,500.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
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Equity
- 16,500
0Cash
- 16,500
Assets = Liabilities + EquityAssets = Liabilities + Equity

14. 4. Paid creditor for furniture, Rs.5000.
The accounts involve are –
a) Cash (Assets)
b) Creditors or Trade Payables (Liabilities)
4 April 2015 Financial Accounting 14
0Creditors
- 5000
Cash
- 5000
Assets = Liabilities + EquityAssets = Liabilities + Equity

15. 5. Took a Bank Loan, Rs.15,000.
The accounts involve are –
a) Cash (Assets)
b) Bank Loan (Liability)
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0Bank Loan
+ 15,000
Cash
+ 15,000
Assets = Liabilities + EquityAssets = Liabilities + Equity

16. 6. Received payment from sales of services, Rs.12,000.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
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Equity
+ 12,000
0Cash
+ 12,000
Assets = Liabilities + EquityAssets = Liabilities + Equity

17. 7. Paid salary to office assistant, Rs.5000.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
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Equity
- 5000
0Cash
- 5,000
Assets = Liabilities + EquityAssets = Liabilities + Equity

18. 8. Withdrew cash for personal use, Rs.4,500.
The accounts involve are –
a) Cash (Assets)
b) Equity (Equity)
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Equity
- 4,500
0Cash
- 4,500
Assets = Liabilities + Equity

19. Accounting Equation
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No. Assets = Liabilities Equity
Cash Furniture = Creditors Bank Loan Equity
1. +50,000 = +50,000
2. +10,000 = +10,000
3. -16,500 = -16,500
4. -5,000 = -5,000
5. +15,000 = +15,000
6. +12,000 = +12,000
7. -5,000 = -5,000
8. -4,500 = -4,500
Total +46,000 +10,000 = +5,000 +15,000 +36,000
56,000 = 56,000

20. Balance Sheet of Aman Services
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Balance Sheet as on date
Assets Amount Liabilities & Equity Amount
Cash
Furniture
46,000
10,000
Equity
Bank Loan
Creditors
36,000
15,000
5,000
56,000 56,000