Introduction to accounting

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Accounting Fundamentals: 

1 Accounting Fundamentals Accounting is the language of recording money matters

Accounting Fundamentals: 

2 Accounting Fundamentals This is based on some simple yet powerful rules.

Accounting Fundamentals: 

3 Accounting Fundamentals If you go to a bank, you will find hundreds of customers doing thousands of dealings.

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4 Accounting Fundamentals Some deposit money, some take out money, some take draft and some just inquire balance

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5 Accounting Fundamentals Did you ever think how they manage to keep track of all these details? With almost no mistake? How do they do it?

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6 Accounting Fundamentals Yes they have their computers doing most of the work. But computers came only recently

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7 Accounting Fundamentals Even a computer needs to be programmed to do the work. It does not know what information you want and how you want it.

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8 Accounting Fundamentals There must be a system. A system to organize the information and present it systematically.

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9 Accounting Fundamentals How do we keep record of money received and spent in the house? By writing it in a small note book or a diary

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10 Accounting Fundamentals Our household expenses are very few and they can fit in that little diary. Whenever we need to know something we refer that diary.

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11 Accounting Fundamentals But this method will not work in a business. Because, a business has thousands of things to write.

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12 Accounting Fundamentals We need a better system to record business transactions

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13 Accounting Fundamentals As we follow some rules to organize information in a business.

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14 Accounting Fundamentals Accounting rules are like traffic rules. There are little inconveniences here and there.

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15 Accounting Fundamentals But they make our life safer

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16 Accounting Fundamentals Just imagine for a while our highways are not divided or tracks not properly marked

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17 Accounting Fundamentals The result will be total chaos. Same way the records are meaningless if the information is not available easily.

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18 Accounting Fundamentals Now let’s see how accounting makes the record keeping easy

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19 Accounting Fundamentals We arrange information and records like books in a library

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20 Accounting Fundamentals A librarian has no problem in finding out books, because he organized them first.

Accounting Fundamentals: 

21 Accounting Fundamentals Accounting is the technique of organizing business information

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22 Accounting Fundamentals Now let’s look at some actual accounting techniques

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23 Accounting Fundamentals We keep information in book of accounts

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24 Accounting Fundamentals This book is known as ledger

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25 Accounting Fundamentals So Ledger is the book in which an accountant keeps his records

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26 Accounting Fundamentals Generally one page in a ledger is used for writing all the information about one item only

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27 Accounting Fundamentals For example, Cash Page is used for writing all receipts and payments of cash

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28 Accounting Fundamentals We call that page in the ledger “cash account”

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29 Accounting Fundamentals So, cash account is a page in the ledger reserved for writing all receipts and payments of cash

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30 Accounting Fundamentals Ashok’s account is the page in which all the details of business with Mr. Ashok are written

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31 Accounting Fundamentals Your bank keeps an account in your name in which they write all your deposits and withdrawals

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32 Accounting Fundamentals When you deposit money the bank adds that amount in your name and when you withdraw they subtract it from your balance

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33 Accounting Fundamentals Accountant’s job is adding and subtracting numbers

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34 Accounting Fundamentals So you don’t need to know much Mathematics to do accounting

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35 Accounting Fundamentals Numerical ability is different from mathematics

Accounting Equation: 

36 Accounting Equation First let us see how businessmen keep track of their financial information

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37 Accounting Equation Financial information is organized into different groups

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38 Accounting Equation Once the information is grouped in a meaningful way it is easy to record them

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39 Accounting Equation For example, a cashier in an office knows exactly how much money he had at the beginning of the day

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40 Accounting Equation Then he keeps track of receipts and payments

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41 Accounting Equation At the end of the day he prepares summary of receipts, payments and tallies with the closing balance

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42 Accounting Equation CASH is not the only thing a businessman is concerned about

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43 Accounting Equation There are thousands of other things such as stock in hand, sales of the day, pending bills etc..

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44 Accounting Equation It is not possible to remember all of them unless they are recorded properly

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45 Accounting Equation You must record them systematically , to make them easy to find when you need them

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46 Accounting Equation Accounting is the technique of systematic recording of business information

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47 Accounting Equation What we teach you this year and next year are the basic steps of this powerful technique

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48 Accounting Equation It is very easy to learn, no hard theories, just a few simple steps. Learn, discuss, work out

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49 Accounting Equation All To fill up later

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50 Accounting Equation First we learn to identify the basic elements of accounting in each business dealing

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51 Accounting Equation Assets Liabilities Capital Revenue Expenses These are known as basic elements of accounting

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52 Accounting Equation Assets Liabilities Capital Revenue Expenses Assets are items of value that the business owns or controls Best example is cash in the cash box

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53 Accounting Equation Assets Liabilities Capital Revenue Expenses Liability represents the outsiders who gave us the assets or service, but we did not pay for it It is the outsider’s claim on assets These are the parties whom we owe money

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54 Accounting Equation Assets Liabilities Capital Revenue Expenses Capital is the owners’ claim in the business. It like liability of the business to its owner It shows what the owner really got in his business

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55 Accounting Equation Assets Liabilities Capital Revenue Expenses Revenue is what the business charges its customers for its service or goods Revenue is the benefit while expense is the cost of doing business

Accounting Equation: 

56 Accounting Equation Assets Liabilities Capital Revenue Expenses Expense is the sacrifice for generating revenue in a business Expense is the cost of doing business and revenue is the reward

Accounting Equation: 

57 Accounting Equation Assets Expenses Liabilities Capital Revenue =

Accounting Equation: 

58 Accounting Equation Assets Expenses Liabilities Capital Revenue

Accounting Equation: 

59 Accounting Equation Assets Expenses Liabilities Capital Revenue

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60 Accounting Equation Assets Expenses Liabilities Capital Revenue Profit/loss

Accounting Equation: 

61 Accounting Equation Assets Liabilities Capital + Profit Or - Loss

Fundamentals of Accountancy: 

62 Fundamentals of Accountancy Sam Thomas Accounts Teacher Abu Dhabi Indian School Post Box 46492 Abu Dhabi UAE