Basic Accounts

Account (accountancy)
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Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow management Chart of accounts Constant Purchasing Power Accounting Cost of goods sold Credit terms Debits and credits Double-entry system Fair value accounting FIFO & LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax Financial statements Statement of Financial Position Statement of cash flows Statement of changes in equity Statement of comprehensive income Notes MD&A XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT This box: view talk edit Accounting is a systematic way to record transactions. An Account (in bookkeeping) refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of common financial accounts are cash, accounts receivable, mortgages, loans, PP&E, common stock, sales, services, wages, and payroll. A chart of accounts provides a listing of all financial accounts used by particular business, organization, or government agency.
The system of recording, verifying, and reporting such information is called accounting. Practitioners of accounting are called accountants.[1]
Contents
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1 Types of accounts o 1.1 Based on nature o 1.2 Based on periodicity of flow 2 See also 3 References
[edit] Types of accounts

[edit] Based on nature
An account may be classified as real, personal or as a nominal account Examples Tangibles - Plant and Machinery, Furniture Physically tangible things in the real world and Fixtures, Computers and Information Real and certain intangible things not having any Processing Equipment etc. Intangibles physical existence Goodwill, Patents and Copyrights Individuals, Partnership Firms, Corporate entities, Non-Profit Organizations, any Personal Business and Legal Entities local orstatutory bodies including governments at country, state or local levels Temporary Income and Expenditure Accounts for recognition of the Nominal implications of the financial transactions Sales, Purchases, Electricity Charges during each fiscal year till finalisation of accounts at the end Example: A sales account is opened for recording the sales of goods or services and at the end of the financial period the total sales are transferred to the revenue statement account (Profit and Loss Account or Income and Expenditure Account). Similarly expenses during the financial period are recorded using the respective Expense accounts, which are also transferred to the revenue statement account. The net positive or negative balance (profit or loss) of the revenue statement account is transferred to reserves or capital account as the case may be. Type Represent
[edit] Based on periodicity of flow

The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset, liability, juristic entity or financial transaction. The further classification of accounts is based on the periodicity of their inflows or outflows in the context of the fiscal year. Income is immediate inflow during the fiscal year. Expense is the immediate outflow during the fiscal year. An asset is a long-term inflow with implications extending beyond the financial period and by the traditional view could represent unclaimed income. Alternatively, an asset could be valued at the present value of its future inflows. Liability is long term outflow with implications extending beyond the financial period and by the traditional view could represent unamortised expense. Alternatively, a liability could be valued at the present value of future outflows. Type of accounts Real accounts Personal accounts Nominal accounts Long term inflows Assets Assets Long term outflows Liability Incomes Expenses Short term inflows Short term outflows
Items in accounts are classified into five broad groups, also known as the elements of the accounts:[2] Asset, Liability, Equity, Revenue, Expense. The classification of Equity as a distinctive element for classification of accounts is disputable on account of the "Entity concept", since for the objective analysis of the financial results of any entity the external liabilities of the entity should not be distinguished from any contribution by the shareholders.
Bookkeeping
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually performed by an accountant. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the Single-entry bookkeeping system and the Double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process. A bookkeeper (or book-keeper), also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks." The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer ledger and general ledger. The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
Contents
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1 Bookkeeping process 2 Bookkeeping systems o 2.1 Single-entry system o 2.2 Double-entry system 3 Daybooks 4 Petty cash book 5 Journals 6 Ledgers 7 Abbreviations used in bookkeeping 8 Chart of accounts 9 Computerized bookkeeping 10 Online bookkeeping 11 Trivia 12 Notes and references
[edit] Bookkeeping process

The bookkeeping process refers primarily to recording the financial effects of financial transactions only into accounts. The variation between manual and any electronic accounting system stems from the latency between the recording of the financial transaction and its posting in the relevant account. This delay, absent in electronic accounting systems due to instantaneous
posting into relevant accounts, is not replicated in manual systems, thus giving rise to primary books of accounts such as Sales Book, Cash Book, Bank Book, Purchase Book for recording the immediate effect of the financial transaction. In the normal course of business, a document is produced each time a transaction occurs. Sales and purchases usually have invoices or receipts. Deposit slips are produced when lodgements (deposits) are made to a bank account. Cheques are written to pay money out of the account. Bookkeeping involves, first of all, recording the details of all of these source documents into multi-column journals (also known as a books of first entry or daybooks). For example, all credit sales are recorded in the Sales Journal, all Cash Payments are recorded in the Cash Payments Journal. Each column in a journal normally corresponds to an account. In the single entry system, each transaction is recorded only once. Most individuals who balance their cheque-book each month are using such a system, and most personal finance software follows this approach. After a certain period, typically a month, the columns in each journal are each totaled to give a summary for the period. Using the rules of double entry, these journal summaries are then transferred to their respective accounts in the ledger, or book of accounts. For example the entries in the Sales Journal are taken and a debit entry is made in each customer's account (showing that the customer now owes us money) and a credit entry might be made in the account for "Sale of Class 2 Widgets" (showing that this activity has generated revenue for us). This process of transferring summaries or individual transactions to the ledger is called posting. Once the posting process is complete, accounts kept using the "T" format undergo balancing, which is simply a process to arrive at the balance of the account. As a partial check that the posting process was done correctly, a working document called an unadjusted trial balance is created. In its simplest form, this is a three column list. The first column contains the names of those accounts in the ledger which have a non-zero balance. If an account has a debit balance, the balance amount is copied into column two (the debit column). If an account has a credit balance, the amount is copied into column three (the credit column). The debit column is then totalled and then the credit column is totalled. The two totals must agree this agreement is not by chance - because under the double-entry rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals do not agree, an error has been made either in the journals or during the posting process. The error must be located and rectified and the totals of debit column and credit column recalculated to check for agreement before any further processing can take place. Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule. For example, the "inventory" account asset account might be changed to bring them into line with the actual numbers counted during a stock take. At the same time, the expense account associated with usage of inventory is adjusted by an equal and opposite amount. Other adjustments such as posting depreciation and prepayments are also done at this time. This results in a listing called the adjusted trial balance. It is the accounts in this list and their corresponding debit or credit balances that are used to prepare the financial statements. Finally financial statements are drawn from the trial balance, which may include:
the income statement, also known as the statement of financial results, profit and loss account, or P&L the balance sheet, also known as the statement of financial position the cash flow statement the statement of retained earnings, also known as the statement of total recognised gains and losses or statement of changes in equity
[edit] Bookkeeping systems

Two common bookkeeping systems used by businesses and other organizations are the singleentry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a revenue and expense journal. Single-entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.
[edit] Single-entry system

The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a checking (cheque) account register but allocates the income and expenses to various income and expense accounts. Separate account records are maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and travel expenses. These days, single entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations. Sample revenue and expense journal for single-entry bookkeeping[1] Offic Dat Descripti Reven Expen Sales Servic Invento Adver Freig e No. Sales Misc e on ue se Tax es ry t. ht Supp l 7/1 Balance 1,826.0 1,218. 150.0 835.00 98.00 510.00 295.00 245.00 83.50 61.50 3 forward 0 00 0 Printer104 7/1 Advert 450.00 450.00 1 3 flyers Wholesale 104 7/1 r380.00 380.00 2 3 inventory 104 7/1 office 92.50 92.50 3 6 supplies 7/1 bank 1,232.0 -7 deposit 0 - Taxable 400.00 32.00 sales
ban k 104 4
- Out-ofstate sales - Resales - Service sales 7/1 bank 9 charge 7/1 petty cash 9 TOTALS
165.00 370.00 265.00 23.40 100.00 3,058.0 1,880.9 2,153. 130.0 775.00 0 0 00 0 23.40 100.0 0 150.0 176.0 184.9 675.00 695.00 0 0 0
[edit] Double-entry system

Main article: double-entry bookkeeping system
[edit] Daybooks
A daybook is a descriptive and chronological (diary-like) record of day-to-day financial transactions also called a book of original entry. The daybook's details must be entered formally into journals to enable posting to ledgers. Daybooks include:

Sales daybook, for recording all the sales invoices. Sales credits daybook, for recording all the sales credit notes. Purchases daybook, for recording all the purchase invoices. Purchases credits daybook, for recording all the purchase credit notes. Cash daybook, usually known as the cash book, for recording all money received as well as money paid out. It may be split into two daybooks: receipts daybook for money received in, and payments daybook for money paid out.
[edit] Petty cash book

A petty cash book is a record of small value purchases usually controlled by imprest system. Items such as coffee, tea, birthday cards for employees, stationery for office working, a few dollars if you're short on postage, are listed down in the petty cash book.
[edit] Journals
A journal is a formal and chronological record of financial transactions before their values are accounted for in the general ledger as debits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (i.e. sales, cash receipts, revenue, etc.) making transactions easier to summarize and reference later. For every debit
journal entry recorded there must be an equivalent credit journal entry to maintain a balanced accounting equation.[2]
[edit] Ledgers
A ledger is a record of accounts. These accounts are recorded separately showing their beginning/ending balance. A journal lists financial transactions in chronological order without showing their balance but showing how much is going to be charged in each account. A ledger takes each financial transactions from the journal and records them into the corresponding account for every transaction listed. The ledger also sums up the total of every account which is transferred into the balance sheet and income statement. There are 3 different kinds of ledgers that deal with book-keeping. Ledgers include:

Sales ledger, which deals mostly with the Accounts Receivable account. This ledger consists of the financial transactions made by customers to the business. Purchase ledger is a ledger that goes hand and hand with the Accounts Payable account. This is the purchasing transaction a company does. General ledger representing the original 5 main accounts: assets, liabilities, equity, income, and expenses
[edit] Abbreviations used in bookkeeping

A/C - Account Acc - Account A/R - Accounts Receivable A/P - Accounts Payable B/S - Balance Sheet c/d - Carried down b/d - Brought down c/f - Carried forward b/f - Brought forward Dr - Debit record Cr - Credit record G/L - General Ledger; (or N/L - Nominal Ledger) P&L - Profit & Loss; (or I/S - Income Statement) PP&E - Property, Plant and Equipment TB - Trial Balance GST - Goods and Services Tax VAT - Value Added Tax CST - Central Sale Tax TDS - Tax Deducted at Source AMT - Alternate Minimum Tax EBITDA - Earnings before Interest, Taxes, Depreciation and Amortisation
EBDTA - Earnings before Depreciation, Taxes and Amortisation EBT - Earnings before Taxes EAT - Earnings after Tax PAT - Profit after tax PBT - Profit before tax Depr - Depreciation Dep'n - Depreciation
[edit] Chart of accounts

A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger.
[edit] Computerized bookkeeping

Computerized bookkeeping removes many of the paper "books" that are used to record transactions and usually enforces double entry bookkeeping.
[edit] Online bookkeeping

Online bookkeeping, or remote bookkeeping, allows source documents and data to reside in web-based applications which allow remote access for bookkeepers and accountants. All entries made into the online software are recorded and stored in a remote location. The online software can be accessed from any location in the world and permit the bookkeeper or data entry person to work from any location with a suitable data communications link.
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Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations)[1] is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.[1] The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time.
Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments. This statement is commonly referred to as the statement of activities. Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended. The income statement can be prepared in one of two methods.[2] The Single Step income statement takes a simpler approach, totaling revenues and subtracting expenses to find the bottom line. The more complex Multi-Step income statement (as the name implies) takes several steps to find the bottom line, starting with the gross profit. It then calculates operating expenses and, when deducted from the gross profit, yields income from operations. Adding to income from operations is the difference of other revenues and other expenses. When combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which finally produces the net income for the period measured.
Contents
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1 Usefulness and limitations of income statement o 1.1 Operating section o 1.2 Non-operating section o 1.3 Irregular items o 1.4 Disclosures o 1.5 Earnings per share 2 Sample income statement 3 Bottom line 4 Requirements of IFRS o 4.1 Items and disclosures 5 See also 6 References 7 External links
[edit] Usefulness and limitations of income statement

Income statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses. However, information of an income statement has several limitations:
Items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty).
Some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level). Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).
- INCOME STATEMENT GREENHARBOR LLC For the year ended DECEMBER 31 2010 Debit Revenues GROSS REVENUES (including INTEREST income) Expenses: ADVERTISING BANK & CREDIT CARD FEES BOOKKEEPING SUBCONSTRACTORS ENTERTAINMENT INSURANCE LEGAL & PROFESSIONAL SERVICES LICENSES PRINTING, POSTAGE & STATIONERY RENT MATERIALS TELEPHONE UTILITIES TOTAL EXPENSES NET INCOME 6,300 144 2,350 88,000 5,550 750 1,575 632 320 13,000 74,400 1,000 1,491
Credit 296,397 --------
-------(195,512) -------100,885
Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U.S.. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions. If applicable to the business, summary values for the following items should be included in the income statement:[3]
[edit] Operating section
Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. It is usually presented as sales minus sales discounts, returns, and allowances.
Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. o Cost of Goods Sold (COGS) / Cost of Sales - represents the direct costs attributable to goods produced and sold by a business (manufacturing or merchandizing). It includes material costs, direct labour, and overhead costs (as in absorption costing), and excludes operating costs (period costs) such as selling, administrative, advertising or R&D, etc. o Selling, General and Administrative expenses (SG&A or SGA) - consist of the combined payroll costs. SGA is usually understood as a major portion of nonproduction related costs, in contrast to production costs such as direct labour. Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, etc.). General and Administrative (G&A) expenses - represent expenses to manage the business (salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies, etc.). o Depreciation / Amortization - the charge with respect to fixed assets / intangible assets that have been capitalised on the balance sheet for a specific (accounting) period. It is a systematic and rational allocation of cost rather than the recognition of market value decrement. o Research & Development (R&D) expenses - represent expenses included in research and development.
Expenses recognised in the income statement should be analysed either by nature (raw materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by function (cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by function, then additional information on the nature of expenses, at least, depreciation, amortisation and employee benefits expense must be disclosed. (IAS 1.104)
[edit] Non-operating section
Other revenues or gains - revenues and gains from other than primary business activities (e.g. rent, income from patents). It also includes unusual gains that are either unusual or infrequent, but not both (e.g. gain from sale of securities or gain from disposal of fixed assets) Other expenses or losses - expenses or losses not related to primary business operations, (e.g. foreign exchange loss). Finance costs - costs of borrowing from various creditors (e.g. interest expenses, bank charges).
Income tax expense - sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/ tax payable) and the amount of deferred tax liabilities (or assets).
[edit] Irregular items

They are reported separately because this way users can better predict future cash flows irregular items most likely will not recur. These are reported net of taxes.
Discontinued operations is the most common type of irregular items. Shifting business location(s), stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations. Discontinued operations must be shown separately.
Cumulative effect of changes in accounting policies (principles) is the difference between the book value of the affected assets (or liabilities) under the old policy (principle) and what the book value would have been if the new principle had been applied in the prior periods. For example, valuation of inventories using LIFO instead of weighted average method. The changes should be applied retrospectively and shown as adjustments to the beginning balance of affected components in Equity. All comparative financial statements should be restated. (IAS 8) However, changes in estimates (e.g. estimated useful life of a fixed asset) only requires prospective changes. (IAS 8) No items may be presented in the income statement as extraordinary items. (IAS 1.87) Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. [Note: natural disaster might not qualify depending on location (e.g. frost damage would not qualify in Canada but would in the tropics).] Additional items may be needed to fairly present the entity's results of operations. (IAS 1.85)
[edit] Disclosures
Certain items must be disclosed separately in the notes (or the statement of comprehensive income), if material, including:[3] (IAS 1.98)

Write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring Disposals of items of property, plant and equipment Disposals of investments Discontinued operations Litigation settlements Other reversals of provisions
[edit] Earnings per share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.
There are two forms of EPS reported:

Basic: in this case "weighted average of shares outstanding" includes only actual stocks outstanding. Diluted: in this case "weighted average of shares outstanding" is calculated as if all stock options, warrants, convertible bonds, and other securities that could be transformed into shares are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is considered to be a more reliable way to measure EPS.
[edit] Sample income statement

The following income statement is a very brief example prepared in accordance with IFRS. It does not show all possible kinds of items appeared a firm, but it shows the most usual ones. Please note the difference between IFRS and US GAAP when interpreting the following sample income statements.
Fitness Equipment Limited INCOME STATEMENTS (in millions) 2009
Year Ended March 31, 2008 2007 --------------------------------------------------------------------------------Revenue $ 14,580.2 $ 11,900.4 $ 8,290.3 Cost of sales (6,740.2) (5,650.1) (4,524.2) ------------------------ ----------Gross profit 7,840.0 6,250.3 3,766.1 ------------------------ ----------SGA expenses (3,624.6) (3,296.3) (3,034.0) ------------------------ ----------Operating profit $ 4,215.4 $ 2,954.0 $ 732.1 ------------------------ -----------
Gains from disposal of fixed assets Interest expense (142.8) ----Profit before tax 589.3 ----Income tax expense (235.7) ----Profit (or loss) for the year 353.6 $
46.3 (119.7) ------------4,142.0 ------------(1,656.8) ------------2,485.2
(124.1) -----------2,829.9 -----------(1,132.0) -----------$ 1,697.9 ------$ -------------
DEXTERITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In millions) Year Ended December 31, 2009 2008 2007 --------------------------------------------------------------------------------------------Revenue $ 36,525.9 $ 29,827.6 $ 21,186.8 Cost of sales (18,545.8) (15,858.8) (11,745.5) ----------- ---------- -----------Gross profit 17,980.1 13,968.8 9,441.3 ----------- ---------- -----------Operating expenses: Selling, general and administrative expenses (4,142.1) (3,732.3) (3,498.6) Depreciation (602.4) (584.5) (562.3) Amortization (209.9) (141.9) (111.8) Impairment loss (17,997.1) ----------- ---------- -----------Total operating expenses (22,951.8) (4,458.7) (4,172.7) ----------- ---------- -----------Operating profit (or loss) $ (4,971.7) $ 9,510.1 $ 5,268.6 ----------- ---------- -----------Interest income 25.3 11.7 12.0 Interest expense (718.9) (742.9) (799.1) ----------- ---------- ------------
Profit (or loss) from continuing operations before tax, share of profit (or loss) from associates and non-controlling interest 8,778.9 $ 4,481.5 --- -----------Income tax expense (3,510.5) (1,789.9) Profit (or loss) from associates, net of tax 0.1 (37.3) Profit (or loss) from non-controlling interest, net of tax (4.7) (3.3) --- -----------Profit (or loss) from continuing operations 5,263.8 $ 2,651.0 --- -----------Profit (or loss) from discontinued operations, net of tax (802.4) 164.6 --- -----------Profit (or loss) for the year 4,461.4 $ 2,815.6
$ (5,665.3) ----------(1,678.6) (20.8) (5.1) ----------$ (7,369.8) ----------(1,090.3) ----------$ (8,460.1)
$ --------
-------$ --------
-------$
[edit] Bottom line

"Bottom line" is the net income that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is informally called "bottom line." It is important to investors as it represents the profit for the year attributable to the shareholders. After revision to IAS 1 in 2003, the Standard is now using profit or loss rather than net profit or loss or net income as the descriptive term for the bottom line of the income statement.
[edit] Requirements of IFRS

On 6 September 2007, the International Accounting Standards Board issued a revised IAS 1: Presentation of Financial Statements, which is effective for annual periods beginning on or after 1 January 2009. A business entity adopting IFRS must include:

a Statement of Comprehensive Income or two separate statements comprising: 1. an Income Statement displaying components of profit or loss and
2. a Statement of Comprehensive Income that begins with profit or loss (bottom line of the income statement) and displays the items of other comprehensive income for the reporting period. (IAS1.81) All non-owner changes in equity (i.e. comprehensive income ) shall be presented in either in the statement of comprehensive income (or in a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity. Comprehensive income for a period includes profit or loss (net income) for that period and other comprehensive income recognised in that period. All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. (IAS 1.88) Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income. (IAS 1.89)
[edit] Items and disclosures

The statement of comprehensive income should include:[3] (IAS 1.82) 1. Revenue 2. Finance costs (including interest expenses) 3. Share of the profit or loss of associates and joint ventures accounted for using the equity method 4. Tax expense 5. A single amount comprising the total of (1) the post-tax profit or loss of discontinued operations and (2) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation 6. Profit or loss 7. Each component of other comprehensive income classified by nature 8. Share of the other comprehensive income of associates and joint ventures accounted for using the equity method 9. Total comprehensive income The following items must also be disclosed in the statement of comprehensive income as allocations for the period: (IAS 1.83)

Profit or loss for the period attributable to non-controlling interests and owners of the parent Total comprehensive income attributable to non-controlling interests and owners of the parent
No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as extraordinary items.
[edit]
Chart of accounts
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow management Chart of accounts Constant Purchasing Power Accounting Cost of goods sold Credit terms Debits and credits Double-entry system Fair value accounting FIFO & LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax Financial statements Statement of Financial Position Statement of cash flows Statement of changes in equity Statement of comprehensive income Notes MD&A XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT This box: view talk edit
A chart of accounts (COA) is an arbitrarily created list of the accounts used by a business entity to define each class of items for which money or the equivalent is spent or received. It is used to
organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity. The list can be numerical, alphabetic, or alpha-numeric. The structure and headings of accounts should assist in consistent posting of transactions. Each nominal ledger account is unique to allow its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements, profit and loss accounts followed by balance sheet accounts.
Contents
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1 Nomenclature, classification and codification 2 Example o 2.1 Simple Chart of Accounts 3 Trial Balance 4 Types of accounts 5 See also
[edit] Nomenclature, classification and codification

Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. (Software for some small businesses may not require account numbers.) Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc. As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the first digit is a "1" it is an asset. If the first digit is a "5" it is an operating expense. A gap between account numbers allows for adding accounts in the future. The following is a partial listing of a sample chart of accounts.29=April 2011}}
[edit] Example
[edit] Simple Chart of Accounts
Group headings - Sales, Cost of Goods Sold, Direct Expenses, Administration Expenses, Selling Expenses, Distribution Expenses, Establishment Expenses, Financial Expenses Within each of these headings will be the individual nominal ledger accounts that make up the chart of accounts. Establishment expenses may consist of rent, rates, repairs
Balance Sheet Accounts
Asset Accounts ---Cash, Bank Accounts, Accounts Receivable (Debtors), Prepaid Expenses, Inventory (Stock on Hand), Land, Buildings, Vehicles & Equipment, Investments & Stocks, Accumulated Depreciation and Other Assets
Liability Accounts ---Accounts Payable (Creditors), Credit Cards, Tax Payable, Employment Expenses Payable, Bank Loans,
Stockholders' Equity Accounts ---Common Stock (Share Capital), Retained Earnings (Revenue Reserves), Drawings Profit & Loss accounts
Revenue Accounts ---Sales Revenue, Sales Returns & Allowances, Sales Discounts, Interest Income,
Cost of Goods Sold Accounts---Purchases and sales Expense All sales Expense Purchase Returns & Allowances
Expense Accounts ---Advertising Expense, Bank Fees, Depreciation Expense, Payroll Expense, Payroll Tax Expense, Rent Expense, Income Tax Expense, Office Expense, Utilities Expense
[edit] Trial Balance
The trial balance is a list of the active general ledger accounts with debit and credit balances. A balanced trial balance does not guarantee that there are no errors in the nominal ledger entries.
[edit] Types of accounts

1. Asset accounts: represent the different types of economic resources owned by a business, common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable[citation needed] 2. Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.[citation needed] 3. Equity accounts: represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.[citation needed] 4. Revenue accounts or income: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.[citation needed] 5. Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.[citation needed] 6. Contra-accounts: Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts against long-term notes receivable.
[edit]
Double-entry bookkeeping system

From Wikipedia, the free encyclopedia (Redirected from Double-entry accounting system) Jump to: navigation, search
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts. The name derives from the fact that financial information used to be recorded using pen and ink in paper books - hence "bookkeeping" (whereas now it's recorded mainly in computer systems) and that these books were called journals and ledgers (hence nominal ledger, etc.) - and that each transaction was recorded twice (hence "double-entry"), with the two transactions being called a "debit" and a "credit".
It was first codified in the 15th century by Luca Pacioli. In deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. In modern accounting this is done using debits and credits within the accounting equation: Equity = Assets - Liabilities. The accounting equation serves as an error detection tool. If at any point the sum of debits does not equal the corresponding sum of credits, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value. Double-entry bookkeeping is not a guarantee that no errors have been made - for example, the wrong ledger account may have been debited or credited, or the entries completely reversed.
Contents
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1 Accounting entries 2 History 3 Approaches o 3.1 Traditional approach o 3.2 Accounting equation approach 4 Books of accounts 5 Debits and Credits 6 Double entry example o 6.1 Purchase invoice daybook o 6.2 Bank payments daybook o 6.3 Supplier ledger cards 6.3.1 Sales/customers 6.3.1.1 Sales daybook 6.3.1.2 Customer ledger cards 6.3.2 General (nominal) ledger 6.3.2.1 Bank account 6.3.2.2 Unadjusted trial balance 6.3.2.3 Profit-and-loss statement and balance sheet 7 See also 8 Notes and references 9 External links
[edit] Accounting entries

The double-entry accounting system records financial transactions in relation to asset, liability, income or expense related to it through accounting entries. Any accounting entry in the doubleentry accounting system will result in the recording of equal debit and credit amounts; that is, debits must equal credits. If the accounting entries are recorded without error, at any point in time the aggregate balance of all accounts having positive balances will be equal to the aggregate balance of all accounts having negative balances. The double-entry bookkeeping system ensures
that the financial transaction has equal and opposite effects in at least two different accounts. Accounting entries use terms such as debit and credit to avoid confusion regarding the opposite effect of the accounting entry e.g. If an accounting entry debits a particular account, the opposite account will be credited and vice versa. The rules for formulating accounting entries are known as "Golden Rules of Accounting". The accounting entries are recorded in the "Books of Accounts". Regardless of which accounts and how many are impacted by a given transaction, the fundamental accounting equation A = L + OE will hold.
[edit] History
The earliest extant records that follow the modern double-entry form are those of Amatino Manucci, a Florentine merchant at the end of the 13th century.[1] Some sources suggest that Giovanni di Bicci de' Medici introduced this method for the Medici bank in the 14th century. By the end of the 15th century, the merchant venturers of Venice used this system widely. Luca Pacioli, a Franciscan friar and collaborator of Leonardo da Vinci, first codified the system in a mathematics textbook of 1494.[2]Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it.[3][4] There is however controversy among scholars lately that Benedikt Kotruljevi wrote the first manual on a double-entry bookkeeping system in his 1458 treatise Della mercatura e del mercante perfetto.[5][6][7][8][9][10]
[edit] Approaches
There are two different approaches to the double entry system of bookkeeping. They are Traditional Approach and Accounting Equation Approach. Irrespective of the two approaches the effect on the books of accounts remain the same.
[edit] Traditional approach

This approach is also called as the British Approach. Recording of business transactions under this method are formed on the basis of the existence of two aspects (debit and credit) in each of the transactions. Under the traditional approach, the transactions are entered in the books of accounts by following the golden rules of accounting. Under traditional approach the accounts are classified based on their nature as real, personal and nominal accounts. After classifying the accounts, the following golden rules of accounting are applied to record the financial transaction:
1. Real account: Debit what comes in and credit what goes out 2. Personal account: Debit the receiver and Credit the giver 3. Nominal account: Debit all expenses & losses and Credit all incomes & gains[11]
[edit] Accounting equation approach

This approach is also called as the American Approach. Under this approach transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. The accounting equation is a statement of equality between the debits and the credits. The rules of debit and
credit depend on the nature of an account. For this purpose of accounting equation approach, all the accounts are classified into the following five types based on periodicity of flow as: Assets Accounts, Capital Account, Liabilities Accounts, Revenues or Incomes Accounts and Expenses or Losses Accounts. If there is an increase or decrease in one account, there will be equal decrease or increase in another account. There may be equal increases to both accounts, depending on what kind of accounts they are. There may also be equal decreases to both accounts. Accordingly, the following rules of debit and credit in respect of the various categories of accounts can be obtained. The rules may be summarised as below :1. 2. 3. 4. Assets Accounts: debit increases in assets and credit decreases in assets Capital Account: credit increases in capital and debit decreases in capital Liabilities Accounts: credit increases in liabilities and debit decreases in liabilities Revenues or Incomes Accounts: credits increases in incomes and gains and debit decreases in incomes and gains 5. Expenses or Losses Accounts: debit increases in expenses and losses and credit decreases in expenses and losses
[edit] Books of accounts

It does this by ensuring that each individual financial transaction is recorded in at least two different nominal ledger accounts within the financial accounting system. The two entries have equal amounts and opposite signs, so that when all entries in the accounts are summed, the total is exactly the same: the accounts balance. This is a partial check that each and every transaction has been correctly recorded. The transaction is recorded as a "debit record" (Dr.) in one account, and a "credit record" (Cr.) entry in the other account. The debit entry will be recorded on the debit side (left-hand side) of a General ledger and the credit entry will be recorded on the credit side (right-hand side) of a General ledger account. A General ledger has a Debit (left) side and a Credit (right) side. If the total of the entries on the debit side is greater than the total on the credit side of the nominal ledger account, that account is said to have a debit balance.. Double entry is used only in nominal ledgers. It is not used in daybooks, which normally do not form part of the nominal ledger system. The information from the daybooks will be used in the nominal ledger and it is the nominal ledgers that will ensure the integrity of the resulting financial information created from the daybooks (provided that the information recorded in the daybooks is correct). (The reason for this is to limit the number of entries in the nominal ledger: entries in the daybooks can be totalled before they are entered in the nominal ledger. If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system.) However as can be seen from the examples of daybooks shown below, it is still necessary to check, within each daybook, that the postings from the daybook balance.
The double entry system uses nominal ledger accounts. From these nominal ledger accounts a trial balance can be created. The trial balance lists all the nominal ledger account balances. The list is split into two columns, with debit balances placed in the left hand column and credit balances placed in the right hand column. Another column will contain the name of the nominal ledger account describing what each value is for. The total of the debit column must equal the total of the credit column.
[edit] Debits and Credits

Main article: Debits and credits
Double-entry bookkeeping is governed by the accounting equation. If revenue equals expenses, the following (basic) equation must be true:
assets = liabilities + equity
For the accounts to remain in balance, a change in one account must be matched with a change in another account. These changes are made by debits and credits to the accounts. Note that the usage of these terms in accounting is not identical to their everyday usage. Whether one uses a debit or credit to increase or decrease an account depends on the normal balance of the account. Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit. Liability, Revenue, and Capital accounts (on the right side of the equation) have a normal balance of credit. On a general ledger, debits are recorded on the left side and credits on the right side for each account. Since the accounts must always balance, for each transaction there will be a debit made to one or several accounts and a credit made to one or several accounts. The sum of all debits made in any transaction must equal the sum of all credits made. After a series of transactions, therefore, the sum of all the accounts with a debit balance will equal the sum of all the accounts with a credit balance. Debits and credits are then defined as follows:

Debit: A debit is recorded on the left hand side of a T account. it can also be defined as increase in asset and expenses while decrease in liability, revenue and capital. Credit: A credit balance is recorded on the right hand side of a 'T' account Credit can also be defined as increase in liability, revenue and capital and decrease in assets and expenses. Debit accounts = Asset and Expenses (also debit money received into bank accounts) Credit accounts = Gains (income) and Liabilities (also credit money paid out of bank accounts) Debit Asset Liability Income Credit
Increase Decrease Decrease Decrease Increase Increase
Expenditure Capital
Increase Decrease Decrease Increase
[edit] Double entry example

In this example the following will be used: Books of prime entry (Books of original entry)

Sales Invoice Daybook (records customer invoices) Bank Receipts Daybook (records customer & non customer receipts) Cash book Return inwards day book Return outwards day book Purchase Invoice Daybook (records supplier invoices) Bank Payments Daybook (records supplier & non supplier payments)
The books of prime entry are where transactions are first recorded. They are not part of the Double-entry system. Ledger Cards

Customer Ledger Cards Supplier Ledger Cards General Ledger (Nominal Ledger) Bank Account Ledger Trade Creditors Ledger Trade Debtors Ledger
[edit] Purchase invoice daybook

Purchase Invoice Daybook Date Supplier Name Reference Amount Electricity Widgets PI1 PI2 1000 1600 ------Total 2600 ==== Credit ------1000 ==== Debit 1000 1600 ------1600 ==== Debit
10 July 2006 Electricity Company 12 July 2006 Widget Company
Trade control a/c
Electricity Widgets a/c a/c
Each individual line is posted as follows:

The amount value is posted as a credit to the individual supplier's ledger a/c The analysis amount is posted as a debit to the relevant general ledger a/c
From example above:

Line 1 - Amount value 1000 is posted as a credit to the Supplier's ledger a/c ELE01-Electricity Company Line 2 - Amount value 1600 is posted as a credit to the Supplier's ledger a/c WID01-Widget Company
The totals of each column are posted as follows:

Amount total value 2600 posted as a credit to the Trade creditors control a/c Electricity total value 1000 posted as a debit to the Electricity General Ledger a/c Widget total value 1600 posted as a debit to the Widgets General Ledger a/c
Double-entry has been observed because Dr = 2600 and Cr = 2600.
[edit] Bank payments daybook

The payments book is not part of the double-entry system.
Bank Payments Daybook Date Supplier Name Reference Amount Suppliers BP701 BP702 BP703 1000 900 400 ------Total 2300 ==== Credit Bank ------1900 ==== Debit Trade 1000 900 400 ------400 ==== Debit Wages Wages
17 July 2006 Electricity Company 19 July 2006 28 July 2006 Widget Company Owner's Wages
Account Creditors control a/c control a/c
Keys: PI = Purchase Invoice, BP = Bank Payment Each individual line is posted as follows:

The amount value is posted as a debit to the individual supplier's ledger a/c. The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above:

Line 1 - Amount value 1000 is posted as a debit to the Supplier's ledger a/c ELE01-Electricity Company. Line 2 - Amount value 900 is posted as a debit to the Supplier's ledger a/c WID01-Widget Company.

Amount total value 2300 posted as a credit to the Bank Account. Trade Creditors total value 1900 posted as a debit to the Trade creditors control a/c. Other total value 400 posted as a debit to the Wages control a/c.
Double-entry has been observed because Dr = 2300 and Cr = 2300. The daybooks are the key documents (books) to the double entry system. From these daybooks we create the ledger accounts. Each transaction will be recorded in at least two ledger accounts.
[edit] Supplier ledger cards

Supplier Ledger Cards A/c Code: ELE01 - Electricity Company Date 17 July 2006 31 July 2006 Details Bank Payments Daybook Balance c/d Reference Amount BP701 1000 0 ------1000 ==== 1 August 2006 A/c Code: WID01 - Widget Company Balance b/d ------1000 ==== 0 Date 10 July 2006 Details Invoice Reference Amount PI1 1000
Date 19 July 2006 31 July 2006
Details Bank Payments Daybook Balance c/d
Reference Amount BP702 900 700 ------1600 ====
Date 12 July 2006
Details Invoice
Reference Amount PI2 1600
------1600 ==== 1 August 2006 Balance b/d 700
[edit] Sales/customers [edit] Sales daybook Sales Invoice Daybook Date Customer Name Reference Amount Parts Service SI1 SI2 2500 2500 3200 ------- ------Total 5700 2500 ==== ==== 3200 ------3200 ====
2 July 2006 JJ Manufacturing 29 July 2006 JJ Manufacturing
Debit Credit Credit Trade debtors Sales Sales Parts Service a/c
control a/c a/c
Each individual line is posted as follows:

The amount value is posted as a debit to the individual customer's ledger a/c. The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above:
Line 1 - Amount value 2500 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing.
Line 2 - Amount value 3200 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing.

Amount total value 5700 posted as a debit to the Trade debtors control a/c. Sales-parts total value 2500 posted as a credit to the Sales parts a/c. Sales-service total value 3200 posted as a credit to the Sales service a/c.
Double-entry has been observed because Dr = 5700 and Cr = 5700.

[edit] Customer ledger cards
Customer Ledger cards are not part of the Double-entry system. They are for memorandum purposes only. They allow you to know the total amount an individual customer owes you.
CUSTOMER LEDGER CARDS A/c Code: JJM01 - JJ Manufacturing Date 2 July 2006 29 July 2006 Details Sales invoice daybook Sales invoice daybook Reference Amount SI1 SI2 2500 3200 ------5700 ==== 1 August 2006 Balance b/d 3200 Date 20 July 2006 31 July 2006 Details Bank receipts daybook balance c/d Reference Amount BR1 2500 3200 ------5700 ====
[edit] General (nominal) ledger GENERAL (NOMINAL) LEDGER Sales parts Date 31 July 2006 Details Balance Reference Amount c/d Date Details Sales invoice daybook Reference Amount SDB 2500 ------2500
2500 2 July 2006 ------2500
==== 1 August 2006 Sales service Date 31 May 2006 Details Balance Reference Amount c/d 3200 ------3200 ==== 1 June 2010 Electricity Date 10 May 2010 Details Electricity Co. Reference Amount PDB 1000 ------1000 ==== 1 June 2010 Balance b/d 1000 Water Date 12 May 2010 Details water Co. Reference Amount Pdb 1600 ------1600 ==== 1 August 2010 Balance b/d 1600 Other a/c Date Details Reference Amount Date Details Date 31 May 2010 Details Balance Date 30 May 2010 Details Balance Balance b/d Date 29 July 2006 Details Sales invoice daybook Balance b/d
==== 2500
Reference Amount SDB 3200 ------3200 ==== 3200
Reference Amount c/d 1000 ------1000 ====
Reference Amount c/d 1600 ------1600 ====
Reference Amount
28 July 2006
Owner's Wages
BPDB
400 ------400 ====
31 July 2006
Balance
c/d
400 ------400 ====
1 August 2006
Balance
b/d
400 Bank Control A/c
Date 31 July 2006
Details Bank receipts daybook
Reference Amount BRDB 2500
Date 31 July 2006 31 July 2006
Details Bank payments daybook Balance
Reference Amount BPDB c/d 2300 200 ------2500 ====
------2500 ==== 1 August 2006 Balance b/d 200
Trade Debtors Control A/c Date 1 July 2006 31 July 2006 Details Balance Sales Invoice Daybook Reference Amount b/d SDB 0 5700 ------5700 ==== 1 August 2006 Balance b/d 3200 Date 31 July 2006 31 July 2006 Details Bank receipts daybook Balance Reference Amount BRDB c/d 2500 3200 ------5700 ====
Trade Creditors Control A/c Date 31 July Details Bank Payments Reference Amount BPDB Date Details Balance Reference Amount b/d 0
1900 1 July 2006
2006 31 July 2006
Daybook Balance c/d 700 ------2600 ==== 1 August 2006 Balance b/d 31 July Purchase Daybook 2006 PDB 2600 ------2600 ==== 700
The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up. The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows the amount due for each individual customer. The total of each individual customer account added together should equal the total in the trade debtors control a/c. The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. The trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the amount due for each individual supplier. The total of each individual supplier account added together should equal the total in the trade creditors control a/c. Each Bank a/c shows all the money in and out through a bank. If you have more than one bank account for your company you will have to maintain separate bank account ledgers in order to complete bank reconciliation statements and be able to see how much is left in each account.
[edit] Bank account Bank A/c Date 20 July 2006 Details Bank Receipts Day Book Reference Amount BR1 2500 Date 17 July 2006 19 July 2006 28 July 2006 31 July 2006 ------2500 ==== Details Bank Payments Daybook Bank Payments Daybook Bank Payments Daybook Balance Reference Amount BP701 BP702 BP703 c/d 1000 900 400 200 ------2500 ====
1 August 2006
Balance
b/d
200
[edit] Unadjusted trial balance Trial balance as at 31 July 2006 A/c description Sales-parts Sales-service Widgets 1600 Electricity 1000 Other Bank 400 200 Debit Credit 2500 3200
Trade Debtors Control A/c 3200 Trade Creditors Control A/c 700 ------- ------6400 6400 ===== ===== Both sides must have the same overall total Debits = Credits.
The individual customer accounts are not to be listed in the trial balance, as the Trade debtors control a/c is the summary of each individual customer a/c. The individual supplier accounts are not to be listed in the trial balance, as the Trade creditors control a/c is the summary of each individual supplier a/c. Important note: this example is designed to show double entry. There are methods of creating a trial balance that significantly reduce the time it takes to record entries in the general ledger and trial balance.
[edit] Profit-and-loss statement and balance sheet Profit and loss statement for the month ending 31 July 2006 Dr x Sales
x x x x x x x x x x x x x x x
Sales-parts Sales-service
2500 3200 ------5700
Widgets
1600 -------
Gross Profit Less expenses Electricity Other
4100
1000 400 ------1400 -------
Net Profit
2700 ====
Balance sheet as at 31 July 2006 Dr x x x x x x x x x x x x Current Liabilities Trade Creditors 700 ------700 ------Net Current Assets 2700 ==== Current Assets Bank A/c 200
Trade Debtors 3200 ------3400
Capital & Reserves
x Revenue Reserves a/c 2700 x x x ------2700 ====
[edit] See also

Nostro and vostro accounts Single-entry accounting system Momentum Accounting and Triple-Entry Bookkeeping
[edit] Notes and references

1. ^ G. A. Lee (1977), "The Coming of Age of Double Entry: The Giovanni Farolfi Ledger of 12991300", Accounting Historians Journal, 4(2): 79-95 2. ^ Luca Pacioli: The Father of Accounting 3. ^ La Riegola De Libro 4. ^ Livio, Mario (2002). The Golden Ratio. New York: Broadway Books. pp. 130131. ISBN 0-76790816-3. 5. ^ of Croatian Science, 15th-19th centuries 6. ^ Essay title - Financial Accounting And Accountants 7.
Revenue
From Wikipedia, the free encyclopedia Jump to: navigation, search For other uses, see Revenue (disambiguation).
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow management Chart of accounts Constant Purchasing Power Accounting Cost of goods sold Credit terms Debits and credits Double-entry system Fair value accounting FIFO & LIFO GAAP / IFRS
General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax Financial statements Statement of Financial Position Statement of cash flows Statement of changes in equity Statement of comprehensive income Notes MD&A XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT This box: view talk edit In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover. Some companies receive revenue from interest, dividends or royalties paid to them by other companies.[1] Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company X had revenue of $42 million." Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.[2] For non-profit organizations, annual revenue may be referred to as gross receipts.[3] This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization's mission, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies. In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers. In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue. Corporations that offer shares for sale to the
public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards. In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized periodically under the heading Revenue or Revenues on an income statement. Revenue account names describe the type of revenue, such as "Repair service revenue", "Rent revenue earned" or "Sales".[4]
Contents
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1 Business revenue o 1.1 Financial statement analysis 2 Government revenue 3 See also 4 Notes and references
Business revenue
Business revenue is income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some businesses, such as manufacturing and/or grocery, most revenue is from the sale of goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by lending assets to other organizations or individuals. Revenues from a business's primary activities are reported as sales, sales revenue or net sales. This includes product returns and discounts for early payment of invoices. Most businesses also have revenue that is incidental to the business's primary activities, such as interest earned on deposits in a demand account. This is included in revenue but not included in net sales.[5] Sales revenue does not include sales tax collected by the business. Other revenue (a.k.a. non-operating revenue) is revenue from peripheral (non-core) operations. For example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as "regular" revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as other revenue and disclose it separately on its income statement to show that it is from something other than its core operations.
Financial statement analysis

Main article: Financial statement analysis
Revenue is a crucial part of financial statement analysis. A companys performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows (expenses). Net Income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call. If a company displays solid top-line growth, analysts could view the periods performance as positive even if earnings growth, or bottom-line growth is stagnant. Conversely, high income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, as well as income growth, is considered essential for a company's publicly traded stock to be attractive to investors. Revenue is used as an indication of earnings quality. There are several financial ratios attached to it, the most important being gross margin and profit margin. Also, companies use revenue to determine bad debt expense using the income statement method. Price / Sales is sometimes used as a substitute for a Price to earnings ratio when earnings are negative and the P/E is meaningless. Though a company may have negative earnings, it almost always has positive revenue. Gross Margin is a calculation of revenue less cost of goods sold, and is used to determine how well sales cover direct variable costs relating to the production of goods. Net income/sales, or profit margin, is calculated by investors to determine how efficiently a company turns revenues into profits....
Government revenue
Main article: Government revenue Government revenue includes all amounts of money (i.e. taxes and/or fees) received from sources outside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies and individuals.[6] Government revenue may also include reserve bank currency which is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry. The income derives from the Official Cash rate payable by the retail banks for instruments such as 90 day bills.There is a question as to whether using generic business based accounting standards can give a fair and accurate picture of government accounts in that with a monetary policy statement to the reserve bank directing a positive inflation rate. The expense provision for the return of currency to the reserve bank is largely symbolic in that to totally cancel the currency in circulation provision all currency would have to be returned to the reserve bank and cancelled.
See also
Look up revenue in Wiktionary, the free dictionary.
Net revenue List of companies by revenue Micro-revenue
Expense
From Wikipedia, the free encyclopedia Jump to: navigation, search Expenses redirects here. For the row about members' expenses in the UK Parliament which started about May 2009, see United Kingdom Parliamentary expenses scandal.
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow management Chart of accounts Constant Purchasing Power Accounting Cost of goods sold Credit terms Debits and credits Double-entry system Fair value accounting FIFO & LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax Financial statements Statement of Financial Position Statement of cash flows Statement of changes in equity Statement of comprehensive income Notes MD&A XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT This box: view talk edit
In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often referred to as an expense. An expense is a cost that is "paid" or "remitted", usually in exchange for something of value. Something that seems to cost a great deal is "expensive". Something that seems to cost little is "inexpensive". "Expenses of the table" are expenses of dining, refreshments, a feast, etc. In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable assets from a person or company to another person or company. This outflow of cash is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller. Technically, an expense is an event in which an asset is used up or a liability is incurred. In terms of the accounting equation, expenses reduce owners' equity. The International Accounting Standards Board defines expenses as ...decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.[1]
Contents
[hide]

1 Bookkeeping for expenses 2 Cash flow 3 Deduction of business expenses under the US tax code 4 Expense Report 5 See also 6 References 7 External links
[edit] Bookkeeping for expenses

In double-entry bookkeeping, expenses are recorded as a debit to an expense account (an income statement account) and a credit to either an asset account or a liability account, which are balance sheet accounts. An expense decreases assets or increases liabilities. Typical business expenses include salaries, utilities, depreciation of capital assets, and interest expense for loans. The purchase of a capital asset such as a building or equipment is not an expense.
[edit] Cash flow
In a cash flow statement, expenditures are divided into operating, investing, and financing expenditures.

Operational expense (OPEX)salary for employees Capital expenditure (CAPEX)buying equipment Financing expenseinterest expense for loans and bonds
An important issue in accounting is whether a particular expenditure is classified as an expense, which is reported immediately on the business's income statement; or whether it is classified as a capital expenditure or an expenditure subject to depreciation, which is not an expense. These latter types of expenditures are reported as expenses when they are depreciated by businesses that use accrual-basis accounting, which is most large businesses and all C corporations. The most common interpretation of whether an expense is of capital or income variety depends upon its term. Viewing an expense as a purchase helps alleviate this distinction. If, soon after the "purchase", that which was expensed holds no value then it is usually identified as an expense. If it retains value soon and long after the purchase, it will be viewed as capital with life that should be amortized/depreciated and retained on the Balance Sheet.
[edit] Deduction of business expenses under the US tax code

For tax purposes, the Internal Revenue Code permits the deduction of business expenses in the taxable year in which those expenses are paid or incurred. This is in contrast to capital expenditures[2] that are paid or incurred to acquire an asset. Expenses are costs that do not acquire, improve, or prolong the life of an asset. For example, a person who buys a new truck for a business would be making a capital expenditure because they have acquired a new businessrelated asset. This cost could not be deducted in the current taxable year. However, the gas the person buys during that year to fuel that truck would be considered a deductible expense. The cost of purchasing gas does not improve or prolong the life of the truck but simply allows the truck to run.[3] Even if something qualifies as an expense, it is not necessarily deductible. As a general rule, expenses are deductible if they relate to a taxpayers trade or business activity or if the expense is paid or incurred in the production or collection of income from an activity that does not rise to the level of a trade or business (investment activity). Section 162(a) of the Internal Revenue Code is the deduction provision for business or trade expenses. In order to be a trade or business expense and qualify for a deduction, it must satisfy 5 elements in addition to qualifying as an expense. It must be (1) ordinary and (2) necessary (Welch v. Helvering, 290 U.S. 111, defines this as necessary for the development of the business at least in that they were appropriate and helpful). Expenses paid to preserve ones reputation do not appear to qualify (Welch v. Helvering). In addition, it must be (3) paid or incurred during the taxable year. It must be paid (4) in carrying on (meaning not prior to the start of a business or in creating it) (5) a trade or business activity. To qualify as a trade or business activity, it must be continuous and regular, and profit must be the primary motive.
Section 212 of the Internal Revenue Code is the deduction provision for investment expenses. In addition to being an expense and satisfying elements 1-4 above, expenses are deductible as an investment activity under Section 212 of the Internal Revenue Code if they are (1) for the production or collection of income, (2) for the management, conservation, or maintenance of property held for the production of income, or (3) in connection with the determination, collection, or refund of any tax. In investing, one controversy that mounted throughout 2002 and 2003 was whether companies should report the granting of stock options to employees as an expense on the income statement, or should not report this at all in the income statement, which is what had previously been the norm.
[edit] Expense Report

An expense report is a form of document that contains all the expenses that an individual has incurred as a result of the business operation. For example, if the owner of a business travels to another location for a meeting, the cost of travel, the meals, and all other expenses that he/she has incurred may be added to the expense report. Consequently, these expenses will be considered business expenses and are tax deductible.
[edit] See also

Look up expense in Wiktionary, the free dictionary.

Cash flow statement Income statement Balance Sheet Capital Expenditures Amortization / Depreciation Stock Option Expensing Operational Expenditure Non-Cash Expense Expenses versus Capital Expenditures
[edit]
Balance sheet
From Wikipedia, the free encyclopedia Jump to: navigation, search It has been suggested that Balance sheet substantiation be merged into this article or section. (Discuss) Proposed since February 2010.
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow management Chart of accounts Constant Purchasing Power Accounting Cost of goods sold Credit terms Debits and credits Double-entry system Fair value accounting FIFO & LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax Financial statements Statement of Financial Position Statement of cash flows Statement of changes in equity Statement of comprehensive income Notes MD&A XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT This box: view talk edit In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3] Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.
Contents
[hide]
1 Types o 1.1 Personal balance sheet o 1.2 US small business balance sheet 2 Public Business Entities balance sheet structure o 2.1 Assets o 2.2 Liabilities o 2.3 Equity 3 Sample balance sheet 4 See also 5 References
[edit] Types
A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets.[4] Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.[5] Large businesses also may prepare balance sheets for segments of their businesses.[6] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[7][8]
[edit] Personal balance sheet

A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities.[9]
[edit] US small business balance sheet

Sample Small Business Balance Sheet[10] Assets Liabilities and Owners' Equity Cash $6,600 Liabilities Accounts Receivable $6,200 Notes Payable $30,000 Tools and equipment $25,000 Accounts Payable Total liabilities $30,000 Owners' equity Capital Stock $7,000 Retained Earnings $800 Total owners' equity $7,800 $37,800 Total $37,800
Total
A really small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.[11]
[edit] Public Business Entities balance sheet structure

Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee (now International Accounting Standards Board) and numerous country-specific organizations/companys. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.[12][13][14][15] If applicable to the business, summary values for the following items should be included in the balance sheet:[16] Assets are all the things the business own, this will include property tools, cars, etc.
[edit] Assets
Current assets 1. 2. 3. 4. Cash and cash equivalents Inventories Accounts receivable Prepaid expenses for future services that will be used within a year
Non-current assets (Fixed assets) 1. 2. 3. 4. Property, plant and equipment Investment property, such as real estate held for investment purposes Intangible assets Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) 5. Investments accounted for using the equity method 6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.[17]
[edit] Liabilities
1. Accounts payable 2. Provisions for warranties or court decisions 3. Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds 4. Liabilities and assets for current tax 5. Deferred tax liabilities and deferred tax assets 6. Unearned revenue for services paid for by customers but not yet provided
[edit] Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. It comprises: 1. Issued capital and reserves attributable to equity holders of the parent company (controlling interest) 2. Non-controlling interest in equity Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry
bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual. Regarding the items in equity section, the following disclosures are required: 1. 2. 3. 4. 5. 6. 7. Numbers of shares authorized, issued and fully paid, and issued but not fully paid Par value of shares Reconciliation of shares outstanding at the beginning and the end of the period Description of rights, preferences, and restrictions of shares Treasury shares, including shares held by subsidiaries and associates Shares reserved for issuance under options and contracts A description of the nature and purpose of each reserve within owners' equity
[edit] Sample balance sheet

The following balance sheet is a very brief example prepared in accordance with IFRS. It does not show all possible kinds of assets, liabilities and equity, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.
Balance Sheet of XYZ, Ltd. As of 31 December 2009 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable (Debtors) Less : Allowances for Doubtful Accounts Inventories Prepaid Expenses Investment Securities (Held for trading) Other Current Assets Non-Current Assets (Fixed Assets) Property, Plant and Equipment (PPE) Less : Accumulated Depreciation Investment Securities (Available for sale/Held-to-maturity) Investments in Associates Intangible Assets (Patent, Copyright, Trademark, etc.) Less : Accumulated Amortization Goodwill Other Non-Current Assets, e.g. Deferred Tax Assets, Lease Receivable LIABILITIES and SHAREHOLDERS' EQUITY LIABILITIES Current Liabilities (Creditors: amounts falling due within one year) Accounts Payable Current Income Tax Payable Current portion of Loans Payable Short-term Provisions Other Current Liabilities, e.g. Unearned Revenue, Deposits Non-Current Liabilities (Creditors: amounts falling due after more than one year)
Loans Payable Issued Debt Securities, e.g. Notes/Bonds Payable Deferred Tax Liabilities Provisions, e.g. Pension Obligations Other Non-Current Liabilities, e.g. Lease Obligations SHAREHOLDERS' EQUITY Paid-in Capital Share Capital (Ordinary Shares, Preference Shares) Share Premium Less: Treasury Shares Retained Earnings Revaluation Reserve Accumulated Other Comprehensive Income Non-Controlling Interest
KEY EXECUTIVES - NATIONAL BANK OF ABU DHABI (NBAD)

Name Board Relationships Title Age
Michael Tomalin Abdulla Mohammed Saleh Abdul Raheem Abdullah Al Hosani Abhijit Choudhury Vasgen Edwards Jeff Fallon John Garrett Nicholas Gilani Mark Watts CFA Nathan Weatherstone
No Relationships No Relationships No Relationships No Relationships No Relationships No Relationships No Relationships No Relationships No Relationships No Relationships
Chief Executive Officer Group Chief Operating Officer and Senior General Manager Head of Branches & Consumer BankingTransformation Senior General Manager and Chief Risk Officer of Risk Management Division Head of International Corporate Banking Head of Trade Finance - Europe Chief Audit & Compliance Officer and General Manager Co-head of Investment Banking Group Head of Fixed Income Head of Project Finance Advisory for Investment Banking Group
-----------
View More Key Executives
BOARD MEMBERS - NATIONAL BANK OF ABU DHABI (NBAD)

Name Board Relationships Primary Company Age
Nasser Ahmed Khalifa Al Sowaidi Jauan Salem Ali Al Dhaheri Mohammed Bin Seif Bin Mohammed Al Nahyan Sultan Bin Rashed Al Dhaheri Mohamed Omar Abdulla
45Relationships 9Relationships 9Relationships 9Relationships 14Relationships
National Bank of Abu Dhabi PJSC National Bank of Abu Dhabi PJSC National Bank of Abu Dhabi PJSC National Bank of Abu Dhabi PJSC National Bank of Abu Dhabi PJSC
------
View All NBAD Board Members

Basic Accounts

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Account (accountancy)

From Wikipedia, the free encyclopedia Jump to: navigation, search

[edit] Types of accounts

[edit] Based on periodicity of flow

[edit] Bookkeeping process

[edit] Bookkeeping systems

[edit] Single-entry system

[edit] Double-entry system

[edit] Petty cash book

[edit] Abbreviations used in bookkeeping

[edit] Chart of accounts

[edit] Computerized bookkeeping

[edit] Online bookkeeping

[edit] Usefulness and limitations of income statement

Credit 296,397 --------

[edit] Operating section

[edit] Non-operating section

[edit] Irregular items

[edit] Earnings per share

There are two forms of EPS reported:

[edit] Sample income statement

46.3 (119.7) ------------4,142.0 ------------(1,656.8) ------------2,485.2

(124.1) -----------2,829.9 -----------(1,132.0) -----------$ 1,697.9 ------$ -------------

$ (5,665.3) ----------(1,678.6) (20.8) (5.1) ----------$ (7,369.8) ----------(1,090.3) ----------$ (8,460.1)

[edit] Bottom line

[edit] Requirements of IFRS

[edit] Items and disclosures

[edit] Nomenclature, classification and codification

Balance Sheet Accounts

[edit] Trial Balance

[edit] Types of accounts

Double-entry bookkeeping system

[edit] Accounting entries

[edit] Traditional approach

[edit] Accounting equation approach

[edit] Books of accounts

[edit] Debits and Credits

Increase Decrease Decrease Decrease Increase Increase

Increase Decrease Decrease Increase

[edit] Double entry example

[edit] Purchase invoice daybook

10 July 2006 Electricity Company 12 July 2006 Widget Company

Trade control a/c

Electricity Widgets a/c a/c

Each individual line is posted as follows:

From example above:

The totals of each column are posted as follows:

Double-entry has been observed because Dr = 2600 and Cr = 2600.

[edit] Bank payments daybook

Account Creditors control a/c control a/c

From example above:

The totals of each column are posted as follows:

[edit] Supplier ledger cards

Date 19 July 2006 31 July 2006

Details Bank Payments Daybook Balance c/d

Reference Amount BP702 900 700 ------1600 ====

Date 12 July 2006

Reference Amount PI2 1600

------1600 ==== 1 August 2006 Balance b/d 700

2 July 2006 JJ Manufacturing 29 July 2006 JJ Manufacturing

control a/c a/c

Each individual line is posted as follows:

From example above: