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The basic concepts of the bookkeeping cycle will be covered first. The objectives are:
• Understand why accounting information is important in making business
decisions.
• Describe the nature of a Balance Sheet.
• Explain the accounting meaning of assets, liabilities, and equity.
• Identify the components of a Balance Sheet.
• Analyze business transactions and relate them to changes on the Balance Sheet.
An individual person who earns a living by recording the financial activities of a business
is known as a bookkeeper, while the process of classifying and summarizing business
transactions and interpreting their effects is accomplished by the accountants.
The bookkeeper is concerned with techniques involving the recording of transactions, and
the accountant's objective is the use of data for interpretation. The book keeping and
accounting technique involves:
As you can see, the balance sheet has two counter-balancing sections, which form the
accounting equation:
Assets = Liabilities + Owners’ Equity (i.e. Net Worth)
Example
Consider the following business activities or events of a typical firm:
- the firm owned assets of $100,000
- the firm owed creditors $80,000 (i.e. liabilities)
- the firm owed the owner $20,000 ( i.e. net worth)
We shall call any business event that changes the amount of assets, liabilities, or owners'
equity a business transaction.
Practical Test
1. Given any two known elements of the accounting equation, the third can be
logically computed. Determine the missing amount in each of the accounting
equations below.
Assets = Liabilities + Owners' Equity
1) $7,200 = $2,800 + $______
2) $7,200 = $_____ + $4,400
3) $_____ = $2,800 + $4,400
4) $20,000 = $5,600 + $______
5) $18,000 = $_____ + $6,600
6) $_____ = $4,280 + $8,420
2. Classify each of the following as elements of the accounting equation using the
following abbreviations: A = Assets; L = Liabilities; C = Capital.
1) Cash
2) Accounts payable
3) Owners' Investment
4) Accounts receivable
5) Land
It is the competitive pressure which force corporate managers to make good decision to
improve profitability for their business survival.
For this, manager seeks any strategies to give their companies the competitive advantage.
Most of these strategies involve computers and information technology (IT). The
intelligent use of available technology and information’s can make the difference between
profitability and failure.
IT can give a company ready access to a world market, improve product and service
quality, reduce cost, increase productivity, aid communication between employees and
hence improve company morale.
The main job of the manager is to increase the efficiency/productivity by creating more
sophisticated reports.
The manager must use all the resources at their disposal to meet the objectives and
perform the management function of planning, organizing, leading and controlling. The
corporate resources for the manager are money, materials (including facilities and
equipment), people and information. All these resources become input to various
functional units.
• It closely monitors departure and arrival times so that ground crew activities can
be coordinated.
• Complies and produces many kind of information needed by the management
like:
- The number of passenger miles flown
- Profit per passenger on a particular flight
- Average number of empty seats
- Percent of arrivals on time etc.