IGCSE / O’ LEVEL IN ACCOUNTING
INTRODUCTION
Book-keeping The recording of accounting data in the books of account or using a computerised accounting
package.
Accounting is using book-keeping records to prepare financial statements and to assist in decision-making.
Accounting is (can be defined as) “the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of the information”.
Double entry System A system where each transaction is entered twice, once on the debit side and once on the
credit side.
The objectives of accounting:
Accounting has many objectives; including letting people and organisations know:
∙ If they are making a profit or a loss;
∙ What their business is worth;
∙ What a transaction was worth to them;
∙ How much cash they have;
∙ How wealthy they are;
∙ How much they are owed;
∙ How much they owe to someone else;
∙ Enough information so that they can keep a financial check on the things they do.
State the purposes of measuring business profit and loss.
The purpose of the profit and loss account is to show whether a business has made a PROFIT or LOSS over a
financial year.
Explain the role of accounting in providing information for monitoring progress
and decision-making. Accountancy can support the decision making process and management activity. The
objective of an accounting system is to provide financial information concerning the studied company. The
information concerns the financial situation and the performance of a company and there is intended to the users
to taking decisions.
Users of accounting information: possible users of accounting information include∙ Managers
∙ Owner(s)
∙ A prospective buyer
∙ The bank
∙ Tax inspectors
∙ A prospective partner
∙ Investors, (existing/potential)
The accounting equation:
Assets = Capital + Liabilities
Or, Capital = Assets – Liabilities
Or, Liabilities = Assets - Capital
Define the following terms with example:
Assets: Resources owned by the business. E.g. Land and buildings, fixtures and fittings, Motor vehicle, inventory,
cash in hand, cash at bank etc.
Current assets: Assets consisting of cash, goods for resale, or items having a shorter life.
Non-current assets: Assets having long life and are bought with the intention to use in the business and/but not
for resale. E.g., Land and buildings, fixtures and fittings, computer, motor vehicle etc.
Capital: The total of resources (wealth) supplied to a business by its owner.
Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as
starting a company or investing into an existing business.
Liabilities: Total of money owed for goods and services received or assets supplied to the business.
Current liabilities: Liabilities to be paid for in the near future. E.g., accounts payable, bank overdraft
etc.
Long-term liabilities: Long-term liabilities are a company's financial obligations that are due more than one
year in the future., e.g., bank loan, debenture etc.
Md. Mizanur Rahman Senior Accounting Teacher (IGCSE, O’ & A’ Level) Cell: 019 78 11 22 55
ACC-LAYOUT- 1
Effect of Transaction on Accounting Equation:
1.
↑
Assets = Capital + Liabilities ↓
OR
2
.
↑
↑ or ↑
Assets Capital + Liabilities
=
OR
3.
Assets = Capital + Liabilities ↓ ↓
or ↓
OR
4
.
↑
Assets Capital + Liabilities
=
↓
OR
↑
5. =
Assets Capital + Liabilities ↓
Double Entry Rules:
01.
Accounting Equation
Debit
=
Credit
+
Credit
(+)
(+)
(+)
An increase
An increase
An increase
↑
↑
↑
Assets
Capital(Equity)
Liabilities
02.
↓
↓
↓
A decrease
A decrease
A decrease
(-)
(-)
(-)
Credit
Debit
Debit
Expenses & Income
Debit
Credit
(+)
(+)
An increase
An increase
↑
↑
Expenses
Income/Revenue
↓
↓
A decrease
A decrease
(-)
(-)
Credit
Debit
⮚ The following acronyms may help you to remember the debit and credit accounts:
L
Liabilities
D
D
S
Sales
C
C
L
L
I
In
C
C
03.
P
Purchases
E
Expenses
A
Assets
R
Revenue
04.
Md. Mizanur Rahman Senior Accounting Teacher (IGCSE, O’ & A’ Level) Cell: 019 78 11 22 55