ACCOUNTING 2016/2017 IGCSE NOTES

1. INTRODUCTION TO ACCOUNTING
Bookkeeping is the detailed recording of financial transactions of a
business
Accounting is the collection, classification analysis of financial data /
Accounting is the preparation of financial statement from book
keeping.
Transactions are economic events with monetary value

Assets are resources of an entity they indicate what the business

owns.

Non-current assets are the resources held for longer period of time
with no intention of resale
Examples:
Furniture and Fittings
Machinery
Buildings
Vehicles
*they fall in value (depreciation)

Current assets are resources held by the business for

approximately a year with the intention of resale for a profit
Examples:
Inventories
1) Raw Materials
2) Work in Progress
3) Finished Goods
Trade Receivables/ Debtors
Prepayments (Prepaid)

Liabilities are the financial obligations of a business to owners or

outsiders. They indicate what the business owes
Long term liabilities are financial obligations repayable after a
year
Examples:

Loan
Debenture

Current liabilities are financial obligations repayable within a

year
 Examples:
Accrued Expenses
Trade Payables
Bank Overdraft
*account payable are intuitions the business owes as a
results of credit purchases.

Accounting Equation :

Assets = Equity/Capital + Liability

Capital is the resources the owner started the business with

*capital is recorded as a liability due to the business entity concept
 2. STATEMENT OF FINANICIAL POSITION
It is a statement showing the financial position of an entity as
at particular date
It shows the assets owned by the business, liabilities owed by
the entity and the capital introduced by owner
Cost is the purchase price/ intial price of the assets and all
other cost incurred in bringing the assets to its present location

*It is prepared based on the accounting equation

*For the balance sheet to be balanced Net Assets must equal Capital
Employed

Working Capital = Total CA + Total LCL

Net Assets = Total Assets Long term Liabilities
Total Asseets= Total NBV + Working Capital