BAKHTAR UNIVERSITY

Financial Accounting
Lecturer:
Nesar Ahmad Yosufzai

09/08/15

Accounting terms & Terminologies

Assets
Liabilities
Owners' equity
Income
Expenses
Debits and Credits

The Accounting Equation

Assets = Liabilities + Owners Equity
100,000 = 35000+65000

Financial Statement

Balance Sheet
Income Statement
Cash Flow

Balance Sheet

Shows the financial position of an organization in a

specific time.
Heading
Name of Company
Name of statement
Date

Body
Asset
Liabilities
Owners Equity

Balance Sheet

ASSETS
Resources that are owned by a business and are expected
to benefit future operations

Current / Liquid

Fixed/ Capital

Assets that are being used within one Assets have a life longer than one year
year
Assets that are not directly expensed, but depreciated
Assets that can be converted to cash
Assets that help the organization in running the
Assets that are directly expensed
business operations

Cash

Land

Notes Receivable
Accounts Receivable
Supplies

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 owners net investment

Capital
7

Balance Sheet
Practice
1: 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.

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.
9

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.

10

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.

11

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. Thats why a
corporation is the most attractive form of business
organizations to many investors.

12

09/08/15

13