principal of accounting-1

8/9/2019 Principal of Accounting-1

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PRESENTATION

TOPIC:-

Adjusting Entries, IncomeStatement and Balance sheet.


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Entries made at the end of the accounting period

for the purpose of recognizing revenue and the

expenses that are not properly measured as a

result of generating transaction as they occur.


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Accounting period is of one year duration inwhich accounting activities are performed.e.g. 1stJan to 31st Dec.

Revenue is an income that a company receivesfrom its business activities, usually from thesale of goods and services to the customers.

Expenses are the costs of goods and services

used up in the process of

earning revenue.


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What is the main purpose of adjusting entries?

The main purpose of adjusting entries is to:

a. Record transactions and events.b. Recognize assets purchased during theperiod.

c. Recognize debts paid during the period.d. Correct errors.


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For Merchandise Inventory:-

Merchandise inventory (Debit)

Income summary account (Credit)

For Bad debt Expense:-Bad debt expense (Debit)

Allowance for bad debt (Credit)

For Depreciation Expense:-

Depreciation expense (Debit)

Allowance for depreciation (Credit)


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Accrued Expense:-

Salary, insurance, rent expense (Debit)

Salary, Insurance, rent payable (Credit)Accrued Income:-

Salary, commission, rent receivable(Debit)

Salary, commission, rent income (Credit)


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Accrued Income:- Here the word accruedmeans income which is earned but not yetreceived.

Accrued Expense:- Here the word accruedmeans expense which has not yet been paid.


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The expenses which have been incurred butnot yet been paid.

Situations:- (salary, rent, insurance)Salary payable

Salary not yet paid

Unpaid salary

Accrued salary expense

Outstanding salary expense


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The income which has earned but not yetreceived.

Situations:- (salary, rent, commission)Commission income receivable

Commission earned but not yet received

Accrued commission income

Outstanding commission

income


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Adjustment data:-

Merchandise inventory Dec 31, 2009 Rs.300


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Is referred as profit and loss statement(P&L), earnings statement, operatingstatement or statement of operations.

An income statement is afinancial statement that measures acompany's financial performance over a

specific accounting period


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Financial statement:- Records that shows thefinancial operations and performance of abusiness.


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What is the main purpose of using income

statement?

The main purpose of income statement is to:

An income statement shows you both the income

and the expenses of a company. It allows you to

judge whether the company is spending too much

on particular expenses, or is making profit.


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Sales sales discount sales return = Net sales

(60,000 1,200 500 = 58,300 )

Purchase purchase discount purchase return= gross purchase

(9,500 3,700 4,500 = 1,300 )

Gross purchase + transportation = Net purchase

(1,300 + 500 = 1,800)


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Net purchase + Opening merchandise inventory= cost of good sold available for sale

(1,800 + 23,000 = 24,800)

Cost of good sold available for sale closingmerchandise inventory = cost of good sold

(24,800 17,000 = 7,800)


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Net sales cost of good sold = gross profit/loss

(58,300 7,800 = 50,500)

Gross profit/loss expenses = operating income

(50,500 3,000 = 47,500)

Operating income + other income = Net income(47,500 + 1,000 = 48,500)


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Sales 60,000

Sales discount 1,200

Sales return 500Net sale?


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Balance sheet has three parts: assets, liabilities

and ownership equity. The balance sheet

presents a company's financial position atthe end of a specified date.


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Assets are economic resources that are used to

run the business.

Liability is an obligation that legally binds anIndividual or company to settle a debt.

Owner equity is the total assets minus total

liabilities of an individual or company. For a

company, also called net worth.


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The primary purpose of the balance sheet

Report the financial position of the reportingentity at a particular point oftime.

Determine cash flow for the period

Report the difference between cash inflows

and cash outflows.


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Capital + net profit drawing = owners equity

(40,500 + 700 500 = 40,700 )

Capital net loss drawing = owners equity

(40,500 - 700 500 = 39,300)


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