Day; Tuesday
Date; 20 may 2025
INTRODUCTION TO ACCONTING
Overview of Bookkeeping
Definition:
Bookkeeping is the systematic process of recording
every single financial transaction that occurs in a
business. This includes sales, purchases, receipts,
and payments.
Importance:
Accurate bookkeeping is crucial because:
Missing even one entry can lead to inaccuracies in
financial statements.
It provides a clear picture of the business's financial
health.
Regular updates help in tracking cash flow and
financial performance.
Daily Recording:
Transactions should be recorded daily to maintain
up-to-date financial records.
Regular double-entry bookkeeping ensures that
every transaction is recorded in at least two
accounts (debit and credit).
Double Entry Bookkeeping
Concept:
Double-entry bookkeeping is a fundamental principle
where every financial transaction affects two
accounts:
Debit: An entry that increases an asset or expense
or decreases a liability or equity.
Credit: An entry that increases a liability or equity or
decreases an asset or expense.
Example:
If you own a mobile manufacturing business and
another person manufactures calculators:
When you purchase materials for mobile production,
you would debit the materials account and credit the
cash or accounts payable account.
Principles:
The principles of accounting are universal and
consistent, regardless of geographical location (e.g.,
Qatar vs. England).
This consistency allows businesses to maintain
accurate records and prepare financial statements
that are comparable across different regions.
Role of Accounting
Use of Bookkeeping Records:
Accounting relies on the data collected through
bookkeeping to prepare financial statements at
regular intervals (monthly, quarterly, annually).
Financial Statements:
These statements are essential for stakeholders
(owners, investors, creditors) to understand the
financial position and performance of the business.
Key financial statements include:
Statement of Financial Position: Also known as
the balance sheet, it shows the assets, liabilities,
and equity of the business at a specific point in time.
Income Statement: This statement summarizes the
revenues and expenses over a period, showing the
net profit or loss.
Financial Statements Explained
Statement of Financial Position:
Components:
Assets: Resources owned by the business (e.g.,
cash, inventory, property).
Liabilities: Obligations owed to external parties
(e.g., loans, accounts payable).
Equity: The owner’s residual interest in the assets
after deducting liabilities.
Purpose:
Provides a snapshot of what the business owns and
owes at a specific date, helping assess liquidity and
financial stability.
Income Statement:
Components:
Revenues: Total income generated from sales of
goods or services.
Expenses: Costs incurred in the process of earning
revenues (e.g., cost of goods sold, operating
expenses).
Net Profit or Loss: The difference between total
revenues and total expenses.
Purpose:
Shows the profitability of the business over a
specific period, allowing for performance comparison
against previous periods.
Comparison:
Financial statements can be compared year over
year to assess trends in profitability, asset growth,
and liability management.
This analysis helps in making informed business
decisions and strategic planning.
Key Accounting Elements
Assets:
Definition: Anything owned by the business that has
economic value.
Examples:
Current Assets: Cash, accounts receivable,
inventory.
Non-Current Assets: Buildings, machinery,
vehicles.
Role: Assets are used to generate revenue and are
critical for business operations.
Liabilities:
Definition: Amounts owed by the business to
external parties.
Examples:
Current Liabilities: Accounts payable, short-term
loans.
Long-Term Liabilities: Mortgages, bonds payable.
Role: Liabilities represent the financial obligations
that the business must settle in the future.
Capital:
Definition: The total resources provided by the
owner(s) to fund the business.
Examples:
Cash investments, property, equipment.
Role: Capital is essential for starting and growing
the business, and it reflects the owner’s stake in the
company.
Conclusion
Interrelation:
The relationship between assets, liabilities, and capital is
fundamental in accounting. The accounting equation is
expressed as:
Assets=Liabilities+Capital
Importance of Bookkeeping:
Proper bookkeeping is crucial for accurate financial
reporting, compliance with regulations, and effective
business management.
It enables businesses to track their financial
performance, make informed decisions, and plan for
future growth.
