Accountancy This work is licensed under a Creative Commons-ShareAlike 4.0 International License Original source: Accountancy - Wikibooks.org https://en.wikibooks.org/wiki/Accountancy Contents Preface ............................................................................................................................1 Chapter 1 Categories ......................................................................................................2 1.1 Financial Accounting ..........................................................................................................2 1.1.1 IFRS ...........................................................................................................................2 1.1.1.1 Conceptual Framework ...............................................................................2 1.1.1.2 Tax Purpose ..................................................................................................3 1.2 Management Accounting ..................................................................................................4 1.2.1 Budgeting ................................................................................................................4 Chapter 2 Contents ........................................................................................................5 2.1 Principles of accounting ....................................................................................................5 2.1.1 Accounting Operations: Credit & Debit ...............................................................5 2.1.1.1 For each transaction, the sum of credits equals the sum of debits .....5 2.1.1.2 The first categorization of accounts is whether the account is an asset account, liability account, equity account, income or expense account, cash account.......................................................................................................................6 2.1.2 Forms of Capital .....................................................................................................6 2.1.3 So what are we actually seeing in a Balance Sheet? ..........................................7 2.1.4 Alternative views of accountancy principles .......................................................7 2.1.4.1 Illustrative example of role of adjusting entries ......................................8 2.1.4.2 Basic financial statements from the adjusted trial balance....................9 2.1.4.3 Why financial statements, or why accountancy? ....................................9 2.1.4.4 If a need for accountancy exists, what qualities make it sufficient? ...10 2.2 Introduction to Accountancy ..........................................................................................11 2.2.1 What are the Rules of Accounting? .....................................................................11 2.2.2 The Nature of Accounts: Definitions ..................................................................13 2.2.3 Overview of the accounting cycle........................................................................13 2.2.3.1 Financial statements .................................................................................14 2.2.3.2 Income statement......................................................................................15 2.2.3.3 Debits and Credits......................................................................................16 2.2.4 Separate Entity Concept ......................................................................................17 2.2.4.1 Journal Entries ............................................................................................18 2.2.4.2 T-Accounts...................................................................................................19 2.2.4.3 Ledger Accounts ........................................................................................19 2.2.4.4 Types of Accounts ......................................................................................19 2.2.4.4.1 Summary of types of account ......................................................20 2.2.5 Basic Accounting Principles .................................................................................22 2.2.6 Financial Statements.............................................................................................22 2.2.7 Basic Accounting Classes Course Notes .............................................................25 2.3 The Accounting Equation ................................................................................................27 2.4 Double Entry .....................................................................................................................28 2.4.1 The Accounting Equation .....................................................................................28 2.4.2 When to Debit, when to Credit?...........................................................................29 2.5 Debtors ..............................................................................................................................30 2.6 Creditors ............................................................................................................................31 2.7 Prepayments .....................................................................................................................32 2.8 Accruals..............................................................................................................................33 2.9 Depreciation .....................................................................................................................34 2.9.1 Property, plant, and equipment .........................................................................34 2.9.1.1 The cost model ..........................................................................................35 2.9.2 Depreciation ..........................................................................................................35 2.9.2.1 Straight-line Method .................................................................................35 2.9.2.2 Declining (or Reducing) Balance Method ...............................................36 2.9.2.3 The "Useful Life" approach .......................................................................36 2.9.2.4 Review Questions ......................................................................................37 2.9.2.5 Typical Policies............................................................................................38 2.9.2.6 Answers to Review Questions ..................................................................39 Chapter 3 Proposed additional sections ...................................................................41 3.1 Accounting Standards .....................................................................................................41 3.1.1 What are Accounting Standards? .......................................................................41 3.1.2 Who sets Accounting Standards? ........................................................................41 3.1.3 Compliance with Accounting Standards ............................................................42 3.2 Assets ................................................................................................................................42 3.3 Non-current assets ..........................................................................................................43 3.3.1 Fair value ...............................................................................................................43 3.3.2 Carrying value .......................................................................................................43 3.3.3 recoverable value .................................................................................................43 3.3.4 value in use ...........................................................................................................44 3.3.5 Value relationships ...............................................................................................44 3.3.6 Acquiring, holding , disposal ...............................................................................44 3.3.7 Acquiring ...............................................................................................................44 3.3.8 goodwill .................................................................................................................45 3.3.9 held assets - depreciation ...................................................................................45 3.3.10 held assets - impairment testing and revaluation model .............................46 3.3.11 held assets - minor repairs are expensed, whereas major repairs are capitalised .......................................................................................................................47 3.3.12 Disposal ...............................................................................................................47 3.4 Liabilities ...........................................................................................................................48 3.4.1 accounting for employee liabilities .....................................................................48 3.4.2 Definition in concept context...............................................................................49 3.4.3 Exercises ................................................................................................................49 3.4.4 The role of probable