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Sir Nasir Abbas - FAR 1

Basic Accounting provides an overview of key accounting concepts. It explains that business activities are undertaken to earn a profit, which is calculated as earnings minus expenses. There are different types of businesses organized as sole proprietorships, partnerships, or companies. Financial accounting uses language and accounts to record financial information related to a business's money over a specific period. It treats the business and its owner as separate entities. Accounts are grouped into categories like assets, liabilities, equity, incomes, and expenses. The accounting equation shows that assets always equal the sum of equities and liabilities.

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2K views2 pages

Sir Nasir Abbas - FAR 1

Basic Accounting provides an overview of key accounting concepts. It explains that business activities are undertaken to earn a profit, which is calculated as earnings minus expenses. There are different types of businesses organized as sole proprietorships, partnerships, or companies. Financial accounting uses language and accounts to record financial information related to a business's money over a specific period. It treats the business and its owner as separate entities. Accounts are grouped into categories like assets, liabilities, equity, incomes, and expenses. The accounting equation shows that assets always equal the sum of equities and liabilities.

Uploaded by

Ell Ess
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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30/11/22

Basic Accounting

Economic activity for earning profit – business

Earning – expenses = profit

Types of business activities – Sales of goods or services

Sales of goods – trading (buying & selling) / manufacturing (produce & Sell)

Business expenses & earning for gaining profit

Types of business org. – sole proprietorship / Partnership /company

Business owner – to whom business risk & rewards belongs

Financial accounting – language to record financial information (financial means related to money)
for financial performance reporting for a specific period, and for recording financial information we
use some words called accounts

Separate entity concept – Business and owner are separate entities

Groups of accounts – income, expense, asset (benefit more than 1 year), liability, equity

Assets – owned/purchased/manufactured resources of business from which it can get benefits in


future - Property (Land, building), Furniture, plant, machinery, equipment, investments, trade
receivables/ debtors / Accounts Receivables, Bank, Cash, ---------- Receivable, Vehicles, inventory /
stock, Advance to supplier, Prepayments, computers

Liabilities – obligation to pay - Loan, ------ Payable, creditors / trade payables/ accounts payables,
bank overdraft, advance from customer, unearned income, accrued expenses

Equity – owners right on business - capital, drawings, dividend, accumulated profits

Incomes – sales, sales returns, rent income, interest income, other income

Expenses – purchases, purchase returns, salaries, repair & maintenance, rent, interest, stationery,
utilities, depreciation, Bad debts, bank charges / finance charges, carriage

Accounting equation

Assets = Equity + Liabilities


Owner started business
200,000

Cash +200,000 Capital +200,000


Furniture purchased 50,000

Cash -50,000 furniture +50,000


Obtained loan 100,000

Bank +100,000 Loan +100,000

Asset, Expenses - Increase Dr, decrease Cr


Liabilities, equity & Income – decrease Dr, Increase Cr.

Every transaction has at least two effects on accounting equation

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