Recording Financial

Transactions and the

Principles of Accounting
ch 3
Accounting For Managers

Business events, transactions and

the accounting system
Business events such as buying equipment,
purchasing goods & services, paying expenses,
making sales, distributing goods & services
A transaction is the financial description of
each business events

Business events, transactions and

the accounting system
Types of accounts:
Assets: things the business owns
Liabilities: debts the business owes
Income: the revenue generated from the sale of goods
or services
Expenses: the cost incurred in producing the goods
and services
Equity (or capital): the investment made by
shareholders into the business
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Business events, transactions and

the accounting system
Business profit:

profit = income expenses

Equity or capital of business:

equity = assets - liabilities

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Business events, transactions and

the accounting system
Business is conducted through a series of
which are described in financial terms as

Business events
Transactions

and recorded on

Source documents

that are recorded in an

Accounting system

comprising a series of

Accounts

Business events, transactions and

the accounting system
comprising a series of
of which there are five types

Assets Liabilities Equity

and which are
presented in
financial reports:

Accounts

Income Expense

Profit of the busin

Statement of Financial Position Income Stateme

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The double entry: recording

transactions
means that every business transactions
affects two accounts
Purposes:
Identify what type of accounts is affected
Determine whether the transactions increases or
decreases that account

Two forms of transactions:

Cash
Credit
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The double entry: recording

transactions

Assets

Equity

Debit
Credit

Liabilities

Expenses

Income

Credit
Debit

The double entry: recording

transactions
Debit
Credit

Assets

Liabilities
Credit

Equity

Debit

Asset = Liabitilies + Equity

Extracting financial information

from the accounting system
Prepare statement of comprehensive
income first
Then prepare statement of changes in
equity
Then prepare statement of financial position
(previously balance sheet) must balance
Note: profit is NOT the same as cash flow

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Basic principles of accounting

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Basic principles of accounting

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Basic principles of accounting

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Cost terms and concepts: the

limitations of financial accounting
Exclusion of human, social, and
environmental costs
Requirement to produce financial
statements based on line items and
responsibility centres
How the cost define and calculate

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