ACCOUNTING FOR NON-

ACCOUNTING PROFESSIONALS

Facilitator
Dr. F. A. Sobhani
PhD (USM), MS (Belgium), MBA, BBA (CU)
Professor & Director, MBA & MIHRM Programs, UIU
Visiting Professor, Universiti Teknologi MARA, Malaysia
Editor, Australian Journal of Accounting, Economics & Finance, Sydney
Secretary General, FBHRO, Dhaka
Founding Chairman, BSHRM Chittagong
Email: drfasobhani@gmail.com

Hosted by
https://thrivingskill.com/
18 June 2020
 Learning Outcomes

After attending this session, participants should be able to:

1. Explain the concept of accounting

2. Identify the users of accounting information

3. Know the basic accounting equation.

4. Analyze the effect of business transactions on the basic

accounting equation.

5. Understand the basics of financial statements

 Essence of Accounting

• Language of business

• Technical course in Business & other Studies

• Highly preferred in competitive job market

• Need high concentration to understand

• It’s all about the hard-skills

 What is Accounting?

Accounting deals with ~

1. Debit & Credit
2. Journal & Ledger
3. Assets & Liabilities
4. Profit & Losses
5. Recording & Reporting
 CONCEPT OF ACCOUNTING

Accounting is a process of three activities:

1) Identifying transactions
2) Recording transactions
3) Communicating financial information
 ACCOUNTING PROCESS

Communication
Accounting
Reports
Identification Recording

Prepare
accounting
reports

SOFTBYTE
Select economic events Record, classify Annual Report

(transactions) and summarize

Analyze and interpret

for users
 Definition of Accounting

Accounting is a process of identifying business

transactions; recording, classifying and summarizing
those transactions; preparing financial reports and
providing information to the concerned executives for
making decision.
1) Income Statement
Journal Ledger 2) Statement of Owner’s Equity
3) Balance Sheet
4) Statement of Cash Flows
Any Idea??
 Users of Accounting Information

Internal Users External Users

• Business Managers • Investors (owners)

• Creditors
• Corporate Officials
(bankers & suppliers)
• Board of Directors • Taxing authorities like NBR
• Regulatory agencies
like BSEC, DSE, CSE
QUESTIONS ASKED BY
INTERNAL USERS

• Is cash sufficient to pay bills?

• Can we afford to give
employee pay raises this year?
• What is the cost of
manufacturing each unit of
product?
• Which product line is the most
profitable?
QUESTIONS ASKED BY
EXTERNAL USERS

• Is the company earning

satisfactory income?
• Will the company be
able to pay its debts as
they come due?
• How does the company
compare in size and
profitability with
competitors?
Any Idea??
 ACCOUNTING EQUATION

Basic Accounting Equation

Assets = Liabilities + Stockholders’

Equity
 ASSETS

Assets are economic resources having sellable value

and beneficial for the organization.

• Cash • Land
• Accounts • Building
Receivable • Equipment
• Inventory • Copyrights
• Supplies • Goodwill
• Prepaid Expense • Patents
 LIABILITIES

Liabilities are economic obligations, which are

claims against assets.

• Notes payable • Interest payable

• Accounts payable • Unearned revenue

• Salary payable • Bonds payable

• Dividend payable • Mortgage payable

• Tax payable • Any kind of payable

 STOCKHOLDER’S EQUITY

 The ownership claim on total assets is known

as stockholder’s equity.
 It is equal to total assets minus total
liabilities.
 The stockholders’ equity section of a
corporation’s balance sheet consists of:
1 Paid-up (contributed) capital
2 Retained earnings
 TRANSACTION ANALYSIS

We need to know transaction analysis and prove that

Assests = Liabilities + Owner’s Equity

Or

Assets = Liabilities
If Assets of a company are $100 Crore, Liabilities are also
$100 crore.

If Liabilities of a company are $500 Crore, Assets are also

$500 crore.
 What is Business Transaction?

A business transaction is an activity or

event that can be measured in terms of
money and which affects the financial
position or operations of the business entity.
A business transaction has an effect on any
of the accounting elements: assets, liabilities,
capital, income, and expense.

We need to buy Look, salaries in

furniture for Covid-19 are
office. being disbursed.
 INCREASES AND DECREASES IN
STOCKHOLDERS’ EQUITY

INCREASE DECREASE
Investments by Dividends to
Stockholders Stockholders
Stockholders’
Equity
Revenues Expenses
 TRANSACTION ANALYSIS
TRANSACTION 1

 Suppose, an American company decides to open a virtual

institution to be incorporated as Blended Learning Centre
(BLC), Inc. beside UIU Campus at United City, Dhaka at the
end of March 2020.

 In April 2020, they invest $15,000 cash in exchange for

$15,000 of common stock (owner’s equity).
 TRANSACTION ANALYSIS
TRANSACTION 1 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Common
Cash Stock
(1) +15,000 = +15,000 Investment

There is an increase in the asset Cash, $15,000,

and an equal increase in the stockholders’ equity,
Common Stock, $15,000.
 TRANSACTION ANALYSIS
TRANSACTION 2

BLC purchases computer equipment for $7,000 cash.

 TRANSACTION ANALYSIS
TRANSACTION 2 SOLUTION

Stockholders’
Assets = Liabilities + Equity
Common
Cash + Equipment = Stock
Old Bal. $15,000 $15,000
(2) -7,000 +$7,000
New Bal. $ 8,000 + $7,000 = $15,000

$15,000

Cash is decreased $7,000 and the asset

Equipment is increased $7,000.
 TRANSACTION ANALYSIS
TRANSACTION 3

 BLC purchases computer paper and other supplies expected to

last several months from Gulshan Supply Company for
$1,600.

 Gulshan Supply Company agrees to allow BLC to pay this bill

later.

 This transaction is often referred to as a purchase on account

or a credit purchase.
Acme Supply Company

Softbyte, Inc.
 TRANSACTION ANALYSIS
TRANSACTION 3 SOLUTION

Stockholders’
Assets = Liabilities + Equity
Accounts Common
Cash + Supplies + Equipment = Payable + Stock
Old Bal. $8,000 $7,000 $15,000
(3) +$1,600 +$1,600
New Bal. $8,000 + $1,600 + $7,000 = $1,600 + $15,000

$16,600 $16,600

The asset Supplies is increased $1,600 and the liability

Accounts Payable is increased by the same amount.
 TRANSACTION ANALYSIS
TRANSACTION 4

 BLC receives $1,200 cash from customers for programming

services it has provided.
 This transaction represents the principal revenue-producing
activity of BLC.

BLC, Inc.
 TRANSACTION ANALYSIS
TRANSACTION 4 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Common Retained
Cash + Supplies + Equipment = Payable + Stock Earnings
Old Bal. $8,000 $1,600 $7,000 $1,600 $15,000
(4) +1,200 +1,200 Service
New Bal. $9,200 + $1,600 + $7,000 = $1,600 + $15,000 $1,200 Revenue

$17,800 $17,800

Cash is increased $1,200 and Retained

Earnings is increased $1,200.
 TRANSACTION ANALYSIS
TRANSACTION 5

In May 2020, BLC receives a bill for $250 from the

Daily News for advertising the opening of its business
but postpones payment of the bill until a later date.

BLC, Inc. Bill

Daily New
s
 TRANSACTION ANALYSIS
TRANSACTION 5 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Common Retained
Cash + Supplies + Equipment = Payable + Stock Earnings
Old Bal. $9,200 $1,600 $7,000 $1,600 $15,000 $1,200
(5) +250 -250 Advertising
New Bal. $9,200 + $1,600 + $7,000 = $1,850 + $15,000 $ 950 Expense

$17,800 $17,800

Accounts Payable is increased $250, and

Retained Earnings is decreased $250.
 TRANSACTION ANALYSIS
TRANSACTION 6

 BLC provides programming services of $3,500 for customers.

 Cash amounting to $1,500 is received from customers, and the

balance of $2,000 is billed to customers on account.

BLC, Inc.
Bill
 TRANSACTION ANALYSIS
TRANSACTION 6 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Accounts Common Retained
Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
Old Bal. $ 9,200 $1,600 $7,000 $1,850 $15,000 $ 950
(6) +1,500 +2,000 +3,500 Service
New Bal. $10,700 + $2,000 + $1,600 + $7,000 = $1,850 + $15,000 + $4,450 Revenue

$21,300 $21,300

Cash is increased $1,500; Accounts Receivable is increased

$2,000; and Retained Earnings is increased $3,500.
 TRANSACTION ANALYSIS
TRANSACTION 7

Expenses paid in cash for June are store rent, $600,

salaries of employees, $900, and utilities, $200.

$600

$900
BLC, Inc.

$200
 TRANSACTION ANALYSIS
TRANSACTION 7 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Accounts Common Retained
Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
Old Bal. $10,700 $2,000 $1,600 $7,000 $1,850 $15,000 $4,450
(7) -1,700 -600 Rent
-900 Salaries
-200 Utilities
New Bal. $ 9,000 + $2,000 + $1,600 + $7,000 = $1,850 + $15,000 + $2,750

$19,600 $19,600

Cash is decreased $1,700 and Retained Earnings is

decreased by $1,700.
 TRANSACTION ANALYSIS
TRANSACTION 8

BLC pays its Daily News advertising bill of $250 in cash.

BLC, Inc.

Daily New
s
 TRANSACTION ANALYSIS
TRANSACTION 8 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Accounts Common Retained
Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
Old Bal. $9,000 $2,000 $1,600 $7,000 $1,850 $15,000 $2,750
(8) -250 -250
New Bal. $8,750 + $2,000 + $1,600 + $7,000 = $1,600 + $15,000 + $2,750

$19,350 $19,350

Cash is decreased $250 and Accounts Payable is decreased by $250.

 TRANSACTION ANALYSIS
TRANSACTION 9

The sum of $600 in cash is received from customers

who have previously been billed for services in
Transaction 6.

BLC, Inc.
 TRANSACTION ANALYSIS
TRANSACTION 9 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Accounts Common Retained
Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
Old Bal. $8,750 $2,000 $1,600 $7,000 $1,600 $15,000 $2,750
(9) +600 -600
New Bal. $9,350 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $2,750

$19,350 $19,350

Cash is increased $600 and Accounts Receivable is

decreased by the same amount.
 TRANSACTION ANALYSIS
TRANSACTION 10

In May 2020, the corporation pays a dividend of

$1,300 in cash to United Group, the prime
stockholders of BLC, Inc.

$1,300
BLC, Inc.
 TRANSACTION ANALYSIS
TRANSACTION 10 SOLUTION

Assets = Liabilities + Stockholders’ Equity

Accounts Accounts Common Retained
Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
Old Bal. $9,350 $1,400 $1,600 $7,000 $1,600 $15,000 $2,750
(10) -1,300 -1,300 Dividends
New Bal. $8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $1,450

$18,050 $18,050

Cash is decreased $1,300 and Stockholders’ Equity is

decreased by the same amount.
 NOW WE NEED TO

1. How much net income has been generated by BLC

from these truncations? [Income Statement]

2. What about the retailed earning? [Statement of

Retained Earnings]

3. How much is the assets and liabilities of the

organization? [Balance Sheet]

4. What about the cash flows? [Cash in Hand]

 FINANCIAL STATEMENTS

Four financial statements are prepared from the recorded transactions

and summarized accounting data:

1 An income statement presents the revenues and expenses and resulting

net income or net loss of a company for a specific period of time.

2 A retained earnings statement summarizes the changes in retained

earnings for a specific period of time.

3 A balance sheet reports the assets, liabilities, and stockholders’ equity

of a business enterprise at a specific date.

4 A statement of cash flows summarizes information concerning the

cash inflows (receipts) and outflows (payments) for a specific period of
time.
 How to Determine
Net Income & Retained Earning

Net Income
= All Revenues – All Expenses

Retained Earnings
= Beginning Balance + Net Income – Dividend
 Blended Learning Centre
Trial Balance
31 May 2020

SL Accounts Title Debit ($) Credit ($)

1 Cash 8,050
2 Accounts Receivable 1,400
3 Supplies 1,600
4 Equipment 7,000
5 Accounts Payable 1,600
6 Common Stock 15,000
7 Service Revenue 4,700
8 Salaries Expense 900
9 Rent Expense 600
10 Advertising Expense 250
11 Utilities Expense 200
12 Dividend 1,300
 Format
Income Statement & Retained Earnings

Net Name of the Company

income of Income Statement Net income
$*** For the Month Ended ……………. of $*** is
Revenues
shown on Service revenue $ *** determined
the Expenses
from the
Salaries expense $ ***
income Rent expense *** information
statement Advertising expense ***
in the
Utilities expense ***
is added Total expenses *** retained
to the Net income $ *** earnings
beginning column of
balance of Name of the Company
Retained Earnings Statement the
retained For the Month Ended ……………….. Summary of
earnings Retained earnings, September 1 $ –0– Transactions
Add: Net income ***
in the *** (Illustration
retained Less: Dividends *** 1-8).
earnings Retained earnings, September 30 $ ***

statement.
 ILLUSTRATION-1
Income Statement & Retained Earnings

Net BLC, INC.

income of Income Statement Net income
$2,750 For the Month Ended May 31, 2020 of $2,750 is
Revenues
shown on Service revenue $ 4,700 determined
the Expenses
from the
Salaries expense $ 900
income Rent expense 600 information
statement Advertising expense 250
in the
Utilities expense 200
is added Total expenses 1,950 retained
to the Net income $ 2,750 earnings
beginning column of
balance of BLC, INC.
Retained Earnings Statement the
retained For the Month Ended May 31, 2020 Summary of
earnings Retained earnings, September 1 $ –0– Transactions
Add: Net income 2,750
in the 2,750 (Illustration
retained Less: Dividends 1,300 1-8).
earnings Retained earnings, September 30 $ 1,450

statement.
 Format
Statement of Balance Sheet/Financial Positions

BLC, INC.
Retained Earnings Statement
For the Month Ended May 31, 2020
Retained earnings, September 1 $ –0–
Add: Net income 2,750
Retained 2,750 The retained
earnings of Less: Dividends 1,300
earnings of
Retained earnings, September 30 $ 1,450
$1,450 at the $1,450 at the
end of the Name of the Company end of the
reporting Balance Sheet reporting period
period As of ………………. is shown as the
Assets final total of the
shown in the Cash $ ***
retained Accounts receivable *** retained
Supplies *** earnings column
earnings Equipment *** of the Summary
statement is Total assets $ ***
of Transactions
shown on Liabilities and Stockholders’ Equity
Liabilities (Illustration
the balance Accounts payable $ *** 1-8).
sheet. Stockholders’ equity
Common stock $ ***
Retained earnings 1,450 ***
Total liabilities and stockholders’ equity $ ***
 Blended Learning Centre
Trial Balance
31 May 2020

SL Accounts Title Debit ($) Credit ($)

1 Cash 8,050
2 Accounts Receivable 1,400
3 Supplies 1,600
4 Equipment 7,000
5 Accounts Payable 1,600
6 Common Stock 15,000
7 Service Revenue 4,700
8 Salaries Expense 900
9 Rent Expense 600
10 Advertising Expense 250
11 Utilities Expense 200
12 Dividend 1,300
 ILLUSTRATION-2
Statement of Financial Positions
BLC INC.
Retained Earnings Statement
For the Month Ended May 31, 2020
Retained earnings, September 1 $ –0–
Add: Net income 2,750
Retained 2,750 The retained
earnings of Less: Dividends 1,300
earnings of
Retained earnings, September 30 $ 1,450
$1,450 at the $1,450 at the
end of the BLC, INC. end of the
reporting Balance Sheet reporting period
period May 31, 2020 is shown as the
Assets final total of the
shown in the Cash $ 8,050
retained Accounts receivable 1,400 retained
Supplies 1,600 earnings column
earnings Equipment 7,000 of the Summary
statement is Total assets $ 18,050
of Transactions
shown on Liabilities and Stockholders’ Equity
Liabilities (Illustration
the balance Accounts payable $ 1,600 1-8).
sheet. Stockholders’ equity
Common stock $ 15,000
Retained earnings 1,450 16,450
Total liabilities and stockholders’ equity $ 18,050
 Format
Statement of Cash Flows
BLC, INC.
Balance Sheet
May 31, 2020
Assets
Cash $ 8,050
Accounts receivable 1,400
Supplies 1,600
Equipment 7,000
Total assets $ 18,050
Cash of $8,050
Liabilities and Stockholders’ Equity
Liabilities on the balance
Accounts payable $ 1,600
Stockholders’ equity sheet and
Cash of $8,050 on Common stock $ 15,000
statement of cash
Retained earnings 1,450 16,450
the balance sheet Total liabilities and stockholders’ equity $ 18,050 flows is shown as
is reported on the Name of the Company the final total of
statement of cash Statement of Cash Flows the cash column
For the Month Ended ……………..
flows. Cash flows from operating activities of the Summary
Cash receipts from revenues $ ***
Cash payments for expenses ***
of Transactions
Net cash provided by operating activities *** (Illustration 1-8).
Cash flows from investing activities
Purchase of equipment (***)
Cash flows from financing activities
Sale of common stock $ ***
Payment of cash dividends (***) ***
Net increase in cash ****
Cash at the beginning of the period –0–
Cash at the end of the period $ ***
 ILLUSTRATION-3
Statement of Cash Flows
BLC, INC.
Balance Sheet
May 31, 2020
Assets
Cash $ 8,050
Accounts receivable 1,400
Supplies 1,600
Equipment 7,000
Total assets $ 18,050
Cash of $8,050
Liabilities and Stockholders’ Equity
Liabilities on the balance
Accounts payable $ 1,600
Stockholders’ equity sheet and
Cash of $8,050 on Common stock $ 15,000
statement of cash
Retained earnings 1,450 16,450
the balance sheet Total liabilities and stockholders’ equity $ 18,050 flows is shown as
is reported on the BLC, INC. the final total of
statement of cash Statement of Cash Flows the cash column
For the Month Ended May 31, 2020
flows. Cash flows from operating activities of the Summary
Cash receipts from revenues $ 3,300
Cash payments for expenses (1,950)
of Transactions
Net cash provided by operating activities 1,350 (Illustration 1-8).
Cash flows from investing activities
Purchase of equipment (7,000)
Cash flows from financing activities
Sale of common stock $ 15,000
Payment of cash dividends (1,300) 13,700
Net increase in cash 8,050
Cash at the beginning of the period –0–
Cash at the end of the period $ 8,050
 RATIO ANALYSIS

Ratio-analysis is a concept or technique which

is as old as accounting concept. Financial
analysis is a scientific tool. It has assumed
important role as a tool for appraising the real
worth of an enterprise, its performance during a
period of time and its pit falls. Financial analysis
is a vital apparatus for the interpretation of
financial statements. It also helps to find out any
cross-sectional and time series linkages
between various ratios.
WHY FINANCIAL ANALYSIS

Lenders’ need it for carrying out the following

• Technical Appraisal
• Commercial Appraisal
• Financial Appraisal
• Economic Appraisal
• Management Appraisal
 Ratio Analysis

It’s a tool which enables the banker or lender to

arrive at the following factors :
Liquidity position
Profitability
Solvency
Financial Stability
Quality of the Management
Safety & Security of the loans & advances to be
or already been provided
 Classification of Ratios
Balance Sheet P&L Ratio or Balance Sheet
Ratio Income/Revenue and Profit &
Statement Ratio Loss Ratio

Financial Ratio Operating Ratio Composite Ratio

Current Ratio Gross Profit Ratio Fixed Asset
Quick Asset Ratio Operating Ratio Turnover Ratio,
Proprietary Ratio Expense Ratio Return on Total
Debt Equity Ratio Net profit Ratio Resources Ratio,
Stock Turnover Ratio Return on Own
Funds Ratio,
Earning per Share
Ratio, Debtors’
Turnover Ratio,
 Examples: Two Ratios
1. Current Ratio : It is the relationship between the current
assets and current liabilities of a concern.
Current Ratio = Current Assets/Current Liabilities
If the Current Assets and Current Liabilities of a concern are
Tk.4,00,000 and Tk.2,00,000 respectively, then the Current
Ratio will be : Tk.4,00,000/Tk.2,00,000 = 2 : 1
The ideal Current Ratio preferred by Banks is 1.33 : 1

2. Net Working Capital : This is worked out as surplus of

Long Term Sources over Long Tern Uses, alternatively it is the
difference of Current Assets and Current Liabilities.
NWC = Current Assets – Current Liabilities
 Acknowledgements

Financial Accounting
Weygandt, Kieso, & Kimmel

@John Wiley & Sons, Inc.

Adapted from
Gregory K. Lowry
Mercer University
Marianne Bradford
The University of Tennessee

www.wiley.com/college/weygandt
Best Wishes