1. King Faisal University [ ] 1 Business School Management Department Business Accounting Pre-MBA 2010-2011 Prashanta Kumar Banerjee, Ph.D Fulbright Scholar E-mail : pbanerjee@kfu.edu.sa 1

2. King Faisal University [ ] Single and Double Entry System, and Nature of Accounting Matters 2 Prashanta Kumar Banerjee, PH.D

3. King Faisal University [ ] Reference Book Accounting Principles, Ninth Edition Pp : 18-27 by Weygandt, Kimmel and Kieso ( Most of the parts contributed by the faculty ) 3 Prashanta Kumar Banerjee, PH.D.

4. King Faisal University [ ] Lecture items Transaction Single Entry System Double Entry System Accounting Equation Terminologies List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc 4

5. King Faisal University [ ] What is Transaction? An event is known as a transaction when it --can be measured by coin --can change existing financial event of an organization -- relates to a particular period. 5 Prashanta Kumar Banerjee, PH.D

6. King Faisal University [ ] Single Entry System Single-entry accounting system is a method of bookkeeping relying on a one sided accounting entry to maintain financial information.accounting Many small, simple businesses maintain only a single-entry system that records the "bare- essentials. 6 Prashanta Kumar Banerjee, PH.D

7. King Faisal University [ ] Single Entry System In some cases only records of cash, accounts receivable, accounts payable and taxes paid may be maintained.cashaccounts receivableaccounts payabletaxes Records of assets, inventory, expenses, revenues and other elements usually considered essential in an accounting system may not be kept.assetsinventoryexpensesrevenues We will not consider this in our learning process. 7 Prashanta Kumar Banerjee, PH.D

8. King Faisal University [ ] Double Entry System Every transaction affects two items. Under this scientific method of recording, transaction is recorded by showing effect in relevant two items. This recording system is called Double Entry System. We will learn this process for recording and presenting of accounting transactions. 8 Prashanta Kumar Banerjee, PH.D

9. King Faisal University [ ] The Accounting Equation 1.Resource Supplied by the Owner = Resources in the Business. Or 2.Capital = Asset. Or 3. Capital + Liabilities = Assets 9

10. King Faisal University [ ] Important Terminologies-1 Assets : Assets are resources of a business. The common characteristics possessed by all assets are the capacity to provide future services or benefits Liabilities : Liabilities are claims against assets – that is, existing debt and obligations. Business of all sizes usually borrow money and purchase merchandise on credit. These create liabilities. 10

11. King Faisal University [ ] Important Terminologies-2 Capital : The amount is paid the owners to run the business objecting to get profit. Equity : Equity is more than capital. The ownership claim on total asset is owner’s equity. Equity includes capital, retained earnings, reserve, etc. Income : It also calls revenue. Revenues results from selling merchandise, performing service, renting property, and lending money. 11

12. King Faisal University [ ] Important Terminologies -3 Expense: Expenses are the cost of assets consumed or services used in the process of earning revenue. Expenditure: Expenditure are the cost of assets consumed in future. It creates assets. Profit : Income – Expenses. Drawing : Withdrawing cash or other assets from the business by the owner is called drawing. It decreases owner’s equity. 12

13. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -1 Sl. No. Items Nature of ItemsWhy 1.Accounts PayableLiability 2. Managing Director's Salary Expenses 3.Stationery Expenses 4.Computer Asset 5. Loan from Al Rajhi BankLiability 13

14. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -2 Sl. No. Items Nature of ItemsWhy 6.Sales to SAFCOIncome 7.Fees ReceivedIncome 8.Paid Telephone Bill to STCExpenses 9.AdvertisingExpenses 10.Prepaid Salary to the Employee Asset 14

15. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -3 Sl. No. Items Nature of ItemsWhy 11.FurnitureAsset 12.Cash in HandAsset 13.Investment with Sakuk BondAsset 14.Bank OverdraftLiability 15.Accounts ReceivableAsset 15

16. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -4 Sl. No. Items Nature of ItemsWhy 16.Bad Debt Loss 17.Raw materials Expenses 18.Tax Expenses 19.Entertainment Expenses 20.ReserveEquity 16

17. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -5 Sl. No. Items Nature of ItemsWhy 21.Personal Entertainment Not Involve with the Business 22.Electricity Expenses 23.Building Asset 24.Prepaid Insurance Asset 26. Loan from the Family and Friends(F&F) Liability 17

18. King Faisal University [ ] List of Assets, Liabilities, Equity, Income, Expenses, Loss, etc. -6 Sl. No. Items Nature of ItemsWhy 27.Capital Equity 28. Retained Earnings Equity 29. Outstanding Rent Liability 30.DiamondAsset 18

19. King Faisal University [ ] 19 بحمد الله