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BAKHTAR UNIVERSITY

Financial Accounting

Lecturer:Nesar Ahmad Yosufzai

04/18/23

Accounting terms & Terminologies

Assets Liabilities Owners' equity Income Expenses Debits and Credits

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The Accounting Equation

Assets = Liabilities + Owner’s Equity

100,000 = 35000+65000

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Financial Statement

Balance Sheet Income Statement Cash Flow

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Balance Sheet Shows the financial position of an organization in a

specific time.

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HeadingName of CompanyName of statement Date

BodyAssetLiabilitiesOwner’s Equity

Balance Sheet

ASSETS Resources that are owned by a business and are

expected to benefit future operations

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Current / Liquid Fixed/ Capital•Assets that are being used within one year

•Assets that can be converted to cash

•Assets that are directly expensed

•Assets have a life longer than one year

•Assets that are not directly expensed, but depreciated •Assets that help the organization in running the business operations

•Cash

•Notes Receivable

•Accounts Receivable

•Supplies

•Land

•Building

•Office Equipment

Balance Sheet

Liabilities

Liabilities are company debts and obligations that the company must pay Notes Payable Accounts payable Salaries Payable

Owner Equity

The amount of owner’s net investment Capital

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Balance Sheet

Practice1: Ahmad began the business by depositing $180,000 in a company bank A/C.

2:Purchased land for $141,000 cash.

3:Purchased a prefabricated building for $36,000, paying $15,000 cash and incurring a liability of $21,000.

4:Sold a part of land at a price equal to cost of $11,000, collectible within three months.

5:Purchased office equipment on credit for $5,400.

6:Received $1,500 cash as partial collection of the 11,000 account receivable.

7:Paid $3,000 on account payable.

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Types of Business

1.Service-type businesses: They render services –such as, medical clinics, law practices, property dealers, educational institutes.

2.Merchandising Companies: They sell goods as retailers or wholesalers.

3.Manufacturing Companies: They produce goods and sell

them in a ready-to-sell condition to wholesalers.

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Forms of Business Organizations

1. Sole Proprietorship:-A business owned by one person. In an accounting viewpoint, a sole proprietorship is regarded as a business entity separate from the other affairs of its owner. In a legal viewpoint, the business and its owner are not regarded as separate entities. Thus, the owner is personally liable for the debts of the business.

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Forms of Business Organizations

2.Partnership:-A business owned by two or more persons voluntarily acting as partners (co-owners) is called a partnership. Partnership, like sole proprietorship, is widely used for small businesses. Similar to sole proprietorship, the owners of a partnership are personally liable for all debts of the business from a legal standpoint. However, from an accounting standpoint a partnership is viewed as a business entity separate from its owners’ personal affairs.

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Forms of Business Organizations

3. Corporations:-A corporation is the only type of business organizations recognized under the law as an entity separate from its owners. Therefore, the owners of a corporation are not personally liable for the debts of the business. These owners can lose no more than the amount they have invested in the business. That’s why a corporation is the most attractive form of business organizations to many investors.

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