Accounting Principles

ACCOUNTING PRINCIPLES IN INDIA Accountancy is the process of communicating financial information about a business entity to users such as shareholders
and managers.[1] The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable.[2] The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing.[3] A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers.[1] Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning. The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope the singular usage to mean a particular organization; the generalized usage to refer to a particular market sector, "the music business" and compound forms such as agribusiness; and the broadest meaning, which encompasses all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.
Basic forms of ownership

Although forms of business ownership vary by jurisdiction, there are several common forms:
Sole proprietorship: A sole proprietorship is a business owned by one person for-profit. The owner may operate the business alone or may employ others. The owner of the business has unlimited liability for the debts incurred by the business. Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typical classifications of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships. Corporation: A corporation is a limited liability business that has a separate legal personality from its members. Corporations can be either government-owned or privately-owned, and corporations can organize either for-profit or not-for-profit. A privately-owned, for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. A privately-owned, for-profit corporation can be either privately held or publicly held.
Cooperative: Often referred to as a "co-op", a cooperative is a limited liability business that can organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy. Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals. Financial businesses include banks and other companies that generate profit through investment and management of capital. Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies. Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers. Real estate businesses generate profit from the selling, renting, and development of properties comprising land, residential homes, and other kinds of buildings. Retailers and distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalog companies are distributors or retailers. Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses. Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs. Utilities produce public services such as electricity or sewage treatment, usually under a government charter.
Management
The efficient and effective operation of a business, and study of this subject, is called management. The major branches of management are financial management, marketing management, human resource management, strategic management, production management, operations management, service management and information technology management.[citation needed] Owners engage in business administration either directly or indirectly through the employment of managers. Owner managers, or hired managers administer to three component resources that constitute the business' value or worth: financial resources, capital or tangible resources, and human resources. These resources are administered to in at least five functional areas: legal contracting, manufacturing or service production, marketing, accounting, financing, and human resourcing.[citation needed]
The size and scope of the business firm and its structure, management, and ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as corporations or (less often) partnerships. In addition, a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so. The sector and country. Private profit-making businesses are different from government-owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways. Limited Liability Companies (LLC), limited liability partnerships, and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected. Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason. Disclosure and compliance requirements. Different business structures may be required to make less or more information public (or report it to relevant authorities), and may be bound to comply with different rules and regulations.
Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person". This means that unless there is misconduct, the owner's own possessions are strongly protected in law if the business does not succeed. Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located. A single person who owns and runs a business is commonly known as a sole proprietor, whether that person owns it directly or through a formally organized entity.
A few relevant factors to consider in deciding how to operate a business include: 1. General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business. 2. Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed. 3. In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment. 4. To "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in general you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example, REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public."
Commercial law
Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization. As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time. In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments. Professions that require special licenses range from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.
Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.
Capital
When businesses need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available. Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), Bombay Stock Exchange(India) and so on. Most countries with capital markets have at least one. Businesses that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC), in China. In Singapore, the regulation authority is Monetary Authority of Singapore (MAS), and in Hong Kong, it is Securities and Futures Commission (SFC). As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, health-care law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.
Intellectual property
Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents, copyrights, trademarks or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties. In order to protect trade secrets, companies may require employees to sign non-compete clauses which will impose limitations on an employees interactions with stakeholders, and competitors.
Shareholder
From Wikipedia, the free encyclopedia
(Redirected from Shareholders) Jump to: navigation, search A shareholder or stockholder is an individual or institution (including a corporation) or person, that legally owns any part of a share of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself. (Fama 1980). Stockholders are granted special privileges depending on the class of stock. These rights may include:

The right to sell their shares, The right to vote on the directors nominated by the board, The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions, The right to dividends if they are declared, The right to purchase new shares issued by the company, and The right to what assets remain after a liquidation.
Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, labor, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation. Shareholders in the primary market who buy IPOs provide capital to corporations; however, the vast majority of shareholders are in the secondary market and provide no capital directly to the corporation.
Therefore, contrary to popular opinion, shareholders of American public corporations are not the (1) owners of the corporation, (2) the claimants of the profit, nor (3) investors, as in the contributors of capital.[1] [2]
Communication
Jump to: navigation, search For other uses, see Communication (disambiguation). Communication is the activity of conveying information. Communication has been derived from the Latin word "communis", meaning to share. Communication requires a sender, a message, and an intended recipient, although the receiver need not be present or aware of the sender's intent to communicate at the time of communication; thus communication can occur across vast distances in time and space. Communication requires that the communicating parties share an area of communicative commonality. The communication process is complete once the receiver has understood the message of the sender. Feedback is critical to effective communication between parties
Bookkeeping
Jump to: navigation, search For 'bookkeeping' as a technical programming term, see bookkeeping code. Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually performed by an accountant. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process. A bookkeeper (or book-keeper), also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks." The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer ledger and general ledger. The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
Accountant
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Accountant
Occupation Names Accountant qualified accountant professional accountant chartered accountant Activity sectors business Description
Competencies Education required
management skills Bachelor's degree or higher in most countries, see professional requirements
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow forecasting Chart of accounts Journal Special journals Constant item purchasing power accounting Cost of goods sold Credit terms Debits and credits Double-entry system Mark-to-market accounting FIFO and LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax (U.S.) Financial statements Balance sheet Cash flow statement Statement of retained earnings Income statement Notes Management discussion and analysis XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT CFA CIIA IIA
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An accountant is a practitioner of accountancy (UK) or accounting (US), which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources. The Big Four auditors are the largest employers of accountants worldwide. However, most accountants are employed in commerce, industry and the public sector.[1]
Single-entry bookkeeping system

A single-entry bookkeeping system or single-entry accounting system is a method of bookkeeping relying on a one sided accounting entry to maintain financial information.
Most businesses maintain a record of all transactions based on the double-entry bookkeeping system. However, many small, simple businesses maintain only a singleentry system that records the "bare-essentials." In some cases only records of cash, accounts receivable, accounts payable and taxes paid may be maintained. Records of assets, inventory, expenses, revenues and other elements usually considered essential in an accounting system may not be kept, except in memorandum form. Single-entry systems are usually inadequate except where operations are especially simple and the volume of activity is low. This type of accounting system with additional information can typically be compiled into an income statement and balance sheet by a professional accountant.
[edit] Advantages
Single-entry systems are used in the interest of simplicity. They are usually less expensive to maintain than double-entry systems because they do not require the services of a trained person. According to the U.S. Internal Revenue Service: "A single-entry system is based on the income statement (profit or loss statement). It can be a simple and practical system if you are starting a small business. The system records the flow of income and expenses through the use of: 1. A daily summary of cash receipts, and 2. Monthly summaries of cash receipts and disbursements." (IRS Publication 583: Starting a Business and Keeping Records, 2007) Additionally, in the Internal Revenue Manual 4.10.3.13.2 (03-01-2003), it is stated:"1. The single entry system of recordkeeping does not include equal debits and credits to the balance sheet and income statement accounts. A single-entry accounting system is not self-balancing. Mathematical errors in the account totals are thus common. Reconciliation of the books and records to the return is an important audit step. 2. A single-entry system may consist only of transactions posted in a notebook, daybook, or journal. However, it may include a complete set of journals and a ledger providing accounts for all important items. 3. A single-entry system for a small business might include a business checkbook, check disbursements journal or register, daily/monthly summaries of cash receipts, a depreciation schedule, employee wages records, and ledgers showing debtor and creditor balances."
[edit] Disadvantages
1. Data may not be available to management for effectively planning and controlling the business. 2. Lack of systematic and precise bookkeeping may lead to inefficient administration and reduced control over the affairs of the business. 3. Single-entry records do not provide a check against clerical error, as does a double-entry system. This is one of the most serious defects of single-entry systems. 4. Single-entry records seldom make provision for recording all transactions. In addition, many internal transactions, such as adjusting entries are often not recorded. 5. Because no accounts are provided for many of the items appearing in both the Income Statement and Balance Sheet, omission of important data is possible. 6. In the absence of detailed records of all assets, lax administration of those assets may occur. 7. Theft and other losses are less likely to be detected.
Double-entry bookkeeping system

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A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts. The name derives from the fact that financial information used to be recorded using pen and ink in paper books hence "bookkeeping" (whereas now it's recorded mainly in computer systems) and that these books were called journals and ledgers (hence nominal ledger, etc.) and that each transaction was entered twice (hence "double-entry"), with one side of the transaction being called a debit and the other a credit. It was first codified in the 15th century by Luca Pacioli. In deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. This is also accomplished using the accounting equation: Equity = Assets - Liabilities. The accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value. Double-entry bookkeeping is not a guarantee that no errors have been made for example, the wrong ledger account may have been debited or credited, or the entries completely reversed.
Contents
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o o o o o o
1 Accounting entries 2 History 3 Approaches 3.1 Traditional approach 3.2 Accounting equation approach 3.3 Simple computerised approach 4 Books of accounts 5 Debits and credits 6 Double entry example 6.1 Purchase invoice daybook 6.2 Bank payments daybook 6.3 Supplier ledger cards 6.3.1 Sales/customers 6.3.1.1 Sales daybook 6.3.1.2 Customer ledger cards 6.3.2 General (nominal) ledger 6.3.2.1 Bank account 6.3.2.2 Unadjusted trial balance 6.3.2.3 Profit-and-loss statement and balance sheet 7 See also
8 Notes and references 9 Further reading 10 External links
[edit] Accounting entries

In the double-entry accounting system, each accounting entry records related pairs of financial transactions for asset, liability, income, expense, or capital accounts. Recording of a debit amount to one account and an equal credit amount to another account results in total debits being equal to total credits for all accounts in the general ledger. If the accounting entries are recorded without error, the aggregate balance of all accounts having positive balances will be equal to the aggregate balance of all accounts having negative balances. Accounting entries that debit and credit related accounts typically include the same date and identifying code in both accounts, so that in case of error, each debit and credit can be traced back to a journal and transaction source document, thus preserving an audit trail. The rules for formulating accounting entries are known as "Golden Rules of Accounting". The accounting entries are recorded in the "Books of Accounts". Regardless of which accounts and how many are impacted by a given transaction, the fundamental accounting equation A = L + OE will hold, i.e. assets equals liabilities plus owner's equity.
[edit] History
Main article: Accountancy The earliest extant records that follow the modern double-entry form are those of Amatino Manucci, a Florentine merchant at the end of the 13th century.[1] Some sources suggest that Giovanni di Bicci de' Medici introduced this method for the Medici bank in the 14th century. By the end of the 15th century, the merchant venturers of Venice used this system widely. Luca Pacioli, a Franciscan friar and collaborator of Leonardo da Vinci, first codified the system in a mathematics textbook of 1494.[2] Pacioli is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system, thus enabling others to study and use it.[3][4] There is however controversy among scholars lately that Benedikt Kotruljevi wrote the first manual on a double-entry bookkeeping system in his 1458 treatise Della mercatura e del mercante perfetto.[5][6][7][8][9][10]
[edit] Approaches
There are two different approaches to the double entry system of bookkeeping. They are Traditional Approach and Accounting Equation Approach. Irrespective of the approach used, the effect on the books of accounts remain the same, with two aspects (debit and credit) in each of the transactions.
[edit] Traditional approach

This approach is used in Britain in which accounts are classified as real, personal, and nominal accounts. Real accounts are assets. Personal accounts are liabilities and owners' equity and represent people and entities that have invested in the business. Nominal accounts are revenue, expenses, gains, and losses. Transactions are entered in the books of accounts by applying the following golden rules of accounting: 1. Personal account: Debit the receiver and credit the giver 2. Real account: Debit what comes in and credit what goes out 3. Nominal account: Debit all expenses & losses and credit all incomes & gains[11]
[edit] Accounting equation approach

This approach is also called the American approach. Under this approach transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. The accounting equation is a statement of equality between the debits and the credits. The rules of debit and credit depend on the nature of an account. For the purpose of the accounting equation approach, all the accounts are classified into the following five types: assets, liabilities, income/revenues, expenses, or capital gains/losses. If there is an increase or decrease in one account, there will be equal decrease or increase in another account. There may be equal increases to both accounts, depending on what kind of accounts they are. There may also be equal decreases to both accounts. Accordingly, the following rules of debit and credit in respect to the various categories of accounts can be obtained. The rules may be summarised as below: 1. 2. 3. 4. Assets Accounts: debit increases in assets and credit decreases in assets Capital Account: credit increases in capital and debit decreases in capital Liabilities Accounts: credit increases in liabilities and debit decreases in liabilities Revenues or Incomes Accounts: credit increases in incomes and gains and debit decreases in incomes and gains 5. Expenses or Losses Accounts: debit increases in expenses and losses and credit decreases in expenses and losses
[edit] Simple computerised approach

A very simple way of viewing double-entry accounting, which is easily used within computerised ledgers, is to regard the sum of all entries within an enterprise's ledgers to equal ZERO; ie: 1. Assets or Expenditure are positive. 2. Liabilities or Income are negative. In this approach, Shareholders Equity is regarded as a liability (as it is in essence 'owed' by the enterprise to the shareholders!). Thus, Sales Ledger Invoice entries will be positive
and Credit Note entries negative. The 'mirror' entries of these entries would be: Nominal 'Income' Ledger entries negative for Invoices and positive for Credit Notes. Likewise, cash receipts from Customers credited to a Sales Ledger will be negative and the 'mirror' entry will be positive within the Bank Account Nominal Ledger.
[edit] Books of accounts

Each financial transaction is recorded in at least two different nominal ledger accounts within the financial accounting system, so that the total debits equals the total credits in the General Ledger, i.e. the accounts balance. This is a partial check that each and every transaction has been correctly recorded. The transaction is recorded as a "debit entry" (Dr.) in one account, and a "credit entry" (Cr.) in a second account. The debit entry will be recorded on the debit side (left-hand side) of a General ledger and the credit entry will be recorded on the credit side (right-hand side) of a General ledger account. If the total of the entries on the debit side of one account is greater than the total on the credit side of the same nominal account, that account is said to have a debit balance. Double entry is used only in nominal ledgers. It is not used in daybooks (journals), which normally do not form part of the nominal ledger system. The information from the daybooks will be used in the nominal ledger and it is the nominal ledgers that will ensure the integrity of the resulting financial information created from the daybooks (provided that the information recorded in the daybooks is correct). The reason for this is to limit the number of entries in the nominal ledger: entries in the daybooks can be totalled before they are entered in the nominal ledger. If there are only a relatively small number of transactions it may be simpler instead to treat the daybooks as an integral part of the nominal ledger and thus of the double-entry system. However as can be seen from the examples of daybooks shown below, it is still necessary to check, within each daybook, that the postings from the daybook balance. The double entry system uses nominal ledger accounts. From these nominal ledger accounts a trial balance can be created. The trial balance lists all the nominal ledger account balances. The list is split into two columns, with debit balances placed in the left hand column and credit balances placed in the right hand column. Another column will contain the name of the nominal ledger account describing what each value is for. The total of the debit column must equal the total of the credit column.
[edit] Debits and credits

Main article: Debits and credits Double-entry bookkeeping is governed by the accounting equation. If revenue equals expenses, the following (basic) equation must be true:
assets = liabilities + equity For the accounts to remain in balance, a change in one account must be matched with a change in another account. These changes are made by debits and credits to the accounts. Note that the usage of these terms in accounting is not identical to their everyday usage. Whether one uses a debit or credit to increase or decrease an account depends on the normal balance of the account. Assets, Expenses, and Drawings accounts (on the left side of the equation) have a normal balance of debit. Liability, Revenue, and Capital accounts (on the right side of the equation) have a normal balance of credit. On a general ledger, debits are recorded on the left side and credits on the right side for each account. Since the accounts must always balance, for each transaction there will be a debit made to one or several accounts and a credit made to one or several accounts. The sum of all debits made in any transaction must equal the sum of all credits made. After a series of transactions, therefore, the sum of all the accounts with a debit balance will equal the sum of all the accounts with a credit balance. Debits and credits are numbers recorded as follows: Debits are recorded on the left side of a T account in a ledger. Debits increase balances in asset accounts and expense accounts and decrease balances in liability accounts, revenue accounts, and capital accounts. Credits are recorded on the right side of a T account in a ledger. Credits increase balances in liability accounts, revenue accounts, and capital accounts, and decrease balances in asset accounts and expense accounts. Debit accounts are asset and expense accounts that usually have debit balances, i.e. the total debits usually exceeds the total credits in each debit account. Credit accounts are revenue (income, gains) accounts and liability accounts that usually have credit balances.
De bit De cre as e De cre as e In cre as
Credit
As set
LiabilityIncreaseDecrease
Increase
Income (revenue)
Increase
Expense
Decrease
e De cre as e
Capital
Increase
[edit] Double entry example

In this example the following will be used: Books of prime entry (Books of original entry)

Sales Invoice Daybook (records customer invoices) Bank Receipts Daybook (records customer & non customer receipts) Cash book Return inwards day book Return outwards day book Purchase Invoice Daybook (records supplier invoices) Bank Payments Daybook (records supplier & non supplier payments)
The books of prime entry are where transactions are first recorded. They are not part of the Double-entry system. Ledger Cards

Customer Ledger Cards Supplier Ledger Cards General Ledger (Nominal Ledger) Bank Account Ledger Trade Creditors Ledger Trade Debtors Ledger
[edit] Purchase invoice daybook

Purchase Invoice Daybook Date Supplier Name Reference Amount Electricity Widgets 10 July 2006 Electricity Company PI1 1000 1000 12 July 2006 Widget Company PI2 1600 1600 ------------- ------Total 2600 1000 1600 ==== ==== ==== Credit Debit Debit Trade Electricity Widgets
control a/c Each individual line is posted as follows:

a/c
a/c
The amount value is posted as a credit to the individual supplier's ledger a/c The analysis amount is posted as a debit to the relevant general ledger a/c
From example above: Line 1 Amount value 1000 is posted as a credit to the Supplier's ledger a/c ELE01-Electricity Company Line 2 Amount value 1600 is posted as a credit to the Supplier's ledger a/c WID01-Widget Company
The totals of each column are posted as follows:

Amount total value 2600 posted as a credit to the Trade creditors control a/c Electricity total value 1000 posted as a debit to the Electricity General Ledger a/c Widget total value 1600 posted as a debit to the Widgets General Ledger a/c
Double-entry has been observed because Dr = 2600 and Cr = 2600.
[edit] Bank payments daybook

The payments book is not part of the double-entry system. Bank Payments Daybook Date Supplier Name Reference Amount Suppliers Wages 17 July 2006 Electricity Company BP701 1000 1000 19 July 2006 Widget Company BP702 900 900 28 July 2006 Owner's Wages BP703 400 400 ------------------Total 2300 1900 400 ==== ==== ==== Credit Debit Debit Bank Trade Wages Account Creditors control a/c control a/c Keys: PI = Purchase Invoice, BP = Bank Payment Each individual line is posted as follows:

The amount value is posted as a debit to the individual supplier's ledger a/c. The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above: Line 1 Amount value 1000 is posted as a debit to the Supplier's ledger a/c ELE01-Electricity Company. Line 2 Amount value 900 is posted as a debit to the Supplier's ledger a/c WID01-Widget Company.
The totals of each column are posted as follows: Amount total value 2300 posted as a credit to the Bank Account. Trade Creditors total value 1900 posted as a debit to the Trade creditors control a/c. Other total value 400 posted as a debit to the Wages control a/c.

Double-entry has been observed because Dr = 2300 and Cr = 2300. The daybooks are the key documents (books) to the double entry system. From these daybooks we create the ledger accounts. Each transaction will be recorded in at least two ledger accounts.
[edit] Supplier ledger cards

Supplier Ledger Cards A/c Code: ELE01 Electricity Company Details Reference Amount Date Details Reference Amount Bank 10 July Payments BP701 1000 Invoice PI1 1000 2006 Daybook Balance c/d 0 ------1000 ==== ------1000 ====
Date 17 July 2006 31 July 2006
1 August Balance 0 2006 b/d A/c Code: WID01 Widget Company Details Reference Amount Date Details Reference Amount Bank 12 July Payments BP702 900 Invoice PI2 1600 2006 Daybook Balance c/d 700 ------1600 ------1600
==== 1 August Balance 2006 b/d
==== 700
[edit] Sales/customers
[edit] Sales daybook
Sales Invoice Daybook Date Customer Name Reference Amount Parts Service 2 July 2006 JJ Manufacturing SI1 2500 2500 29 July 2006 JJ Manufacturing SI2 3200 3200 ------- ------- ------Total 5700 2500 3200 ==== ==== ==== Debit Credit Credit Trade Sales Sales debtors Parts Service control a/c a/c a/c Each individual line is posted as follows:

The amount value is posted as a debit to the individual customer's ledger a/c. The analysis amount is posted as a credit to the relevant general ledger a/c.
From example above: Line 1 Amount value 2500 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing. Line 2 Amount value 3200 is posted as a debit to the Customer's ledger a/c JJM01-JJ Manufacturing.
The totals of each column are posted as follows:

Amount total value 5700 posted as a debit to the Trade debtors control a/c. Sales-parts total value 2500 posted as a credit to the Sales parts a/c. Sales-service total value 3200 posted as a credit to the Sales service a/c.
Double-entry has been observed because Dr = 5700 and Cr = 5700.
[edit] Customer ledger cards

Customer Ledger cards are not part of the Double-entry system. They are for memorandum purposes only. They allow you to know the total amount an individual customer owes you.
CUSTOMER LEDGER CARDS A/c Code: JJM01 JJ Manufacturing Details Reference Amount Date Details Reference Amount Sales Bank 20 July invoice SI1 2500 receipts BR1 2500 2006 daybook daybook Sales 31 July invoice SI2 3200 balance c/d 3200 2006 daybook ------------5700 5700 ==== ==== 3200
1 August Balance b/d 2006
[edit] General (nominal) ledger

Date 31 July 2006 GENERAL (NOMINAL) LEDGER Sales parts Details Reference Amount Date Details Reference Amount Sales 2 July Balance c/d 2500 invoice SDB 2500 2006 daybook ------------2500 2500 ==== ==== 1 August Balance b/d 2500 2006 Sales service Details Reference Amount Date Details Reference Amount Sales 29 July Balance c/d 3200 invoice SDB 3200 2006 daybook ------------3200 3200 ==== ==== 1 June Balance b/d 3200 2010 Electricity Details Reference Amount Date Details Reference Amount Electricity 30 May PDB 1000 Balance c/d 1000 Co. 2010 -------------
Date 31 May 2006
Date 10 May 2010
1000 ==== 1 June 2010 Date 12 May 2010 Balance b/d 1000 Details Balance
1000 ====
Water Details Reference Amount Date 31 May water Co. Pdb 1600 2010 ------1600 ==== Balance b/d 1600
Reference Amount c/d 1600 ------1600 ====
1 August 2010 Date 28 July 2006
Other a/c Details Reference Amount Date Owner's 31 July BPDB 400 Wages 2006 ------400 ==== Balance b/d 400
Details Balance
Reference Amount c/d 400 ------400 ====
1 August 2006 Date 31 July 2006
Details Bank receipts daybook
Bank Control A/c Reference Amount Date BRDB 2500 31 July 2006 31 July 2006 ------2500 ====
Details Reference Amount Bank payments BPDB 2300 daybook Balance c/d 200 ------2500 ====
1 August 2006 Date 1 July 2006 31 July
Balance
b/d
200
Details
Trade Debtors Control A/c Reference Amount Date Details Reference Amount Bank 31 July Balance b/d 0 receipts BRDB 2500 2006 daybook Sales SDB 5700 31 July Balance c/d 3200
2006
Invoice Daybook ------5700 ====
2006 ------5700 ====
1 August 2006 Date 31 July 2006 31 July 2006
Balance
b/d
3200
Details Bank Payments Daybook Balance
Trade Creditors Control A/c Reference Amount Date Details BPDB c/d 1900 700 ------2600 ==== 1 August 2006 Balance 1 July 2006 31 July 2006 Balance Purchase Daybook
Reference Amount b/d PDB 0 2600 ------2600 ==== b/d 700
The customers ledger cards shows the breakdown of how the trade debtors control a/c is made up. The trade debtors control a/c is the total of outstanding debtors and the customer ledger cards shows the amount due for each individual customer. The total of each individual customer account added together should equal the total in the trade debtors control a/c. The supplier ledger cards shows the breakdown of how the trade creditors control a/c is made up. The trade creditors control a/c is the total of outstanding creditors and the suppliers ledger cards shows the amount due for each individual supplier. The total of each individual supplier account added together should equal the total in the trade creditors control a/c. Each Bank a/c shows all the money in and out through a bank. If you have more than one bank account for your company you will have to maintain separate bank account ledgers in order to complete bank reconciliation statements and be able to see how much is left in each account.
[edit] Bank account

Date 20 July 2006 Bank A/c Details Reference Amount Date Bank BR1 2500 17 July Receipts 2006 Details Reference Amount Bank BP701 1000 Payments
Day Book 19 July 2006 28 July 2006 31 July 2006 ------2500 ==== 1 August 2006 Balance b/d 200
Daybook Bank Payments Daybook Bank Payments Daybook Balance
BP702 BP703 c/d
900 400 200 ------2500 ====
[edit] Unadjusted trial balance

Trial balance as at 31 July 2006 A/c description Debit Credit Sales-parts Sales-service Widgets Electricity Other Bank Trade Debtors Control A/c Trade Creditors Control A/c ------6400 1600 1000 400 200 3200 700 ------6400 2500 3200
===== ===== Both sides must have the same overall total Debits = Credits. The individual customer accounts are not to be listed in the trial balance, as the Trade debtors control a/c is the summary of each individual customer a/c. The individual supplier accounts are not to be listed in the trial balance, as the Trade creditors control a/c is the summary of each individual supplier a/c.
Important note: this example is designed to show double entry. There are methods of creating a trial balance that significantly reduce the time it takes to record entries in the general ledger and trial balance.
[edit] Profit-and-loss statement and balance sheet

Profit and loss statement for the month ending 31 July 2006
Dr
x x x x x x x x x x
Sales Sales-parts Sales-service 2500 3200 ------5700 Widgets Gross Profit Less expenses Electricity 1000 1600 ------4100
Other
-------
x x x x Balance sheet as at 31 July 2006 Dr x x x x x x x x x x Current Assets Bank A/c 200 Trade Debtors 3200 ------3400 Current Liabilities Trade Creditors 700 ------700 ------Net Profit
1400 ------2700 ====
x Net Current Assets x x Capital & Reserves x Revenue Reserves a/c x x x
2700 ==== 2700 ------2700 ====
Trial balance
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow forecasting Chart of accounts Journal Special journals Constant item purchasing power accounting Cost of goods sold Credit terms Debits and credits Double-entry system Mark-to-market accounting FIFO and LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax (U.S.) Financial statements Balance sheet Cash flow statement Statement of retained earnings Income statement Notes Management discussion and analysis XBRL Auditing
Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT CFA CIIA IIA CTP This box:

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A trial balance is a list of all the General ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit balance value. The debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column. The profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the trial balance. The name comes from the purpose of a trial balance which is to prove that the value of all the debit value balances equal the total of all the credit value balances. Trialing, by listing every nominal ledger balance, ensures accurate reporting of the nominal ledgers for use in financial reporting of a business's performance. If the total of the debit column does not equal the total value of the credit column then this would show that there is an error in the nominal ledger accounts. This error must be found before a profit and loss statement and balance sheet can be produced. The trial balance is usually prepared by a bookkeeper or accountant who has used daybooks to record financial transactions and then post them to the nominal ledgers and personal ledger accounts. The trial balance is a part of the double-entry bookkeeping system and uses the classic 'T' account format for presenting values.
[edit] Trial balance limitations

A trial balance only checks the sum of debits against the sum of credits. That is why it does not guarantee that there are no errors. The following are the main classes of error that are not detected by the trial balance:
An error of original entry is when both sides of a transaction include the wrong amount.[1] For example, if a purchase invoice for 21 is entered as 12, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for 9 less, so the total of both columns will be 9 less, and will thus balance. An error of omission is when a transaction is completely omitted from the accounting records.[1] As the debits and credits for the transaction would balance, omitting it would still leave the totals balanced. A variation of this error is omitting one of the ledger account totals from the trial balance.[2] An error of reversal is when entries are made to the correct amount, but with debits instead of credits, and vice versa.[1] For example, if a cash sale for 100 is debited to the Sales account, and credited to the Cash account. Such an error will not affect the totals. An error of commission is when the entries are made at the correct amount, and the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type.[1] For example, if fuel costs are incorrectly debited to the postage account (both expense accounts). This will not affect the totals. An error of principle is when the entries are made to the correct amount, and the appropriate side (debit or credit), as with an error of commission, but the wrong type of account is used.[1] For example, if fuel costs (an expense account), are debited to stock (an asset account). This will not affect the totals. Compensating errors are multiple unrelated errors that would individually lead to an imbalance, but together cancel each other out.[1] A Transposition Error is an error caused by switching the position of two adjacent digits. Since the resulting error is always divisible by 9, accountants use this fact to locate the misentered number. For example, a total is off by 72, dividing it by 9 gives 8 which indicates that one of the switched digit is either more, or less, by 8 than the other digit. Hence the error was caused by switching the digits 8 and 0 or 1 and 9. This will also not affect the totals.
Income statement
Accountancy
Key concepts Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow forecasting Chart of accounts Journal Special journals Constant item purchasing power accounting Cost of goods sold Credit terms Debits and
credits Double-entry system Mark-to-market accounting FIFO and LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax (U.S.) Financial statements Balance sheet Cash flow statement Statement of retained earnings Income statement Notes Management discussion and analysis XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT CFA CIIA IIA CTP This box:

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This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2009)Income statement (also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of
operations)[1] is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.[1] The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time. Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments. This statement is commonly referred to as the statement of activities. Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended. The income statement can be prepared in one of two methods.[2] The Single Step income statement takes a simpler approach, totaling revenues and subtracting expenses to find the bottom line. The more complex Multi-Step income statement (as the name implies) takes several steps to find the bottom line, starting with the gross profit. It then calculates operating expenses and, when deducted from the gross profit, yields income from operations. Adding to income from operations is the difference of other revenues and other expenses. When combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which finally produces the net income for the period measured.
Contents
[hide]
1 Usefulness and limitations of income statement 1.1 Operating section 1.2 Non-operating section 1.3 Irregular items 1.4 Disclosures 1.5 Earnings per share 2 Sample income statement 3 Bottom line 4 Requirements of IFRS o 4.1 Items and disclosures 5 See also 6 References
o o o o o
7 External links
The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (December 2009)[edit] Usefulness and limitations of income statement
Income statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses. However, information of an income statement has several limitations:

Items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty). Some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level). Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).
- INCOME STATEMENT GREENHARBOR LLC For the year ended DECEMBER 31 2010 Debit Revenues GROSS REVENUES (including INTEREST income) Expenses:
Credit 296,397 --------
ADVERTISING BANK & CREDIT CARD FEES BOOKKEEPING SUBCONTRACTORS ENTERTAINMENT INSURANCE LEGAL & PROFESSIONAL SERVICES LICENSES PRINTING, POSTAGE & STATIONERY RENT MATERIALS TELEPHONE UTILITIES TOTAL EXPENSES NET INCOME
6,300 144 2,350 88,000 5,550 750 1,575 632 320 13,000 74,400 1,000 1,491
-------(195,512) -------100,885
Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U.S.. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions. If applicable to the business, summary values for the following items should be included in the income statement:[3]
[edit] Operating section
Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. It is usually presented as sales minus sales discounts, returns, and allowances.Every time a business sells a product or performs a service, it obtains revenue. This often is referred to as gross revenue or sales revenue. [4] Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. o Cost of Goods Sold (COGS) / Cost of Sales - represents the direct costs attributable to goods produced and sold by a business (manufacturing or merchandizing). It includes material costs, direct labour, and overhead costs (as in absorption costing), and excludes operating costs (period costs) such as selling, administrative, advertising or R&D, etc. o Selling, General and Administrative expenses (SG&A or SGA) consist of the combined payroll costs. SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labour.
Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment, etc.). General and Administrative (G&A) expenses - represent expenses to manage the business (salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies, etc.). Depreciation / Amortization - the charge with respect to fixed assets / intangible assets that have been capitalised on the balance sheet for a specific (accounting) period. It is a systematic and rational allocation of cost rather than the recognition of market value decrement. Research & Development (R&D) expenses - represent expenses included in research and development.
Expenses recognised in the income statement should be analysed either by nature (raw materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by function (cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by function, then additional information on the nature of expenses, at least, depreciation, amortisation and employee benefits expense must be disclosed. (IAS 1.104) The major exclusive of costs of goods sold, are classified as operating expenses. These represent the resources expended, except for inventory purchases, in generating the revenue for the period. Expenses often are divided into two broad sub classicifications selling expenses and administrative expenses.[5]
[edit] Non-operating section
Other revenues or gains - revenues and gains from other than primary business activities (e.g. rent, income from patents). It also includes unusual gains that are either unusual or infrequent, but not both (e.g. gain from sale of securities or gain from disposal of fixed assets) Other expenses or losses - expenses or losses not related to primary business operations, (e.g. foreign exchange loss). Finance costs - costs of borrowing from various creditors (e.g. interest expenses, bank charges). Income tax expense - sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/ tax payable) and the amount of deferred tax liabilities (or assets).
[edit] Irregular items

They are reported separately because this way users can better predict future cash flows irregular items most likely will not recur. These are reported net of taxes.
Discontinued operations is the most common type of irregular items. Shifting business location(s), stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations. Discontinued operations must be shown separately.
Cumulative effect of changes in accounting policies (principles) is the difference between the book value of the affected assets (or liabilities) under the old policy (principle) and what the book value would have been if the new principle had been applied in the prior periods. For example, valuation of inventories using LIFO instead of weighted average method. The changes should be applied retrospectively and shown as adjustments to the beginning balance of affected components in Equity. All comparative financial statements should be restated. (IAS 8) However, changes in estimates (e.g. estimated useful life of a fixed asset) only requires prospective changes. (IAS 8) No items may be presented in the income statement as extraordinary items. (IAS 1.87) Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. [Note: natural disaster might not qualify depending on location (e.g. frost damage would not qualify in Canada but would in the tropics).] Additional items may be needed to fairly present the entity's results of operations. (IAS 1.85)
[edit] Disclosures
Certain items must be disclosed separately in the notes (or the statement of comprehensive income), if material, including:[3] (IAS 1.98)

Write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring Disposals of items of property, plant and equipment Disposals of investments Discontinued operations Litigation settlements Other reversals of provisions
[edit] Earnings per share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.
There are two forms of EPS reported:

Basic: in this case "weighted average of shares outstanding" includes only actual stocks outstanding. Diluted: in this case "weighted average of shares outstanding" is calculated as if all stock options, warrants, convertible bonds, and other securities that could be transformed into shares are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is considered to be a more reliable way to measure EPS.
[edit] Sample income statement

The following income statement is a very brief example prepared in accordance with IFRS. It does not show all possible kinds of items appeared a firm, but it shows the most usual ones. Please note the difference between IFRS and US GAAP when interpreting the following sample income statements.
Fitness Equipment Limited INCOME STATEMENTS (in millions) 2009
Year Ended March 31, 2008 2007 --------------------------------------------------------------------------------Revenue $ 14,580.2 $ 11,900.4 $ 8,290.3 Cost of sales (6,740.2) (5,650.1) (4,524.2) ----------------------------------Gross profit 7,840.0 6,250.3 3,766.1 ----------------------------------SGA expenses (3,624.6) (3,296.3) (3,034.0) ----------------------------------Operating profit $ 4,215.4 $ 2,954.0 $ 732.1 ----------------------------------Gains from disposal of fixed assets 46.3 Interest expense (119.7) (124.1) (142.8) ----------------------------------Profit before tax 4,142.0 2,829.9 589.3
-----------Income tax expense (235.7) -----------Profit (or loss) for the year $ 353.6
------------(1,656.8) ------------$ 2,485.2
-----------(1,132.0) -----------$ 1,697.9
Year Ended December 31, 2008 2007 --------------------------------------------------------------------------------------------Revenue $ 36,525.9 $ 29,827.6 $ 21,186.8 Cost of sales (18,545.8) (15,858.8) (11,745.5) --------------------- -----------Gross profit 17,980.1 13,968.8 9,441.3 --------------------- -----------Operating expenses: Selling, general and administrative expenses (4,142.1) (3,732.3) (3,498.6) Depreciation (602.4) (584.5) (562.3) Amortization (209.9) (141.9) (111.8) Impairment loss (17,997.1) --------------------- -----------Total operating expenses (22,951.5) (4,458.7) (4,172.7) --------------------- -----------Operating profit (or loss) $ (4,971.4) $ 9,510.1 $ 5,268.6 --------------------- -----------Interest income 25.3 11.7 12.0 Interest expense (718.9) (742.9) (799.1) --------------------- -----------Profit (or loss) from continuing operations before tax, share of profit (or loss) from associates and non-controlling interest $ (5,665.0) $ 8,778.9 $ 4,481.5 --------------------- ------------
DEXTERITY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In millions) 2009
Income tax expense (3,510.5) (1,789.9) Profit (or loss) from associates, net of tax 0.1 (37.3) Profit (or loss) from non-controlling interest, net of tax (4.7) (3.3) ----------- -----------Profit (or loss) from continuing operations 5,263.8 $ 2,651.0 ----------- -----------Profit (or loss) from discontinued operations, net of tax (802.4) 164.6 ----------- -----------Profit (or loss) for the year 4,461.4 $ 2,815.6
(1,678.6) (20.8) (5.1) ----------$ (7,348.7) $
----------(1,090.3) ----------$ (8,439.0] $
[edit] Bottom line

"Bottom line" is the net income that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is informally called "bottom line." It is important to investors as it represents the profit for the year attributable to the shareholders. After revision to IAS 1 in 2003, the Standard is now using profit or loss rather than net profit or loss or net income as the descriptive term for the bottom line of the income statement.
[edit] Requirements of IFRS

On 6 September 2007, the International Accounting Standards Board issued a revised IAS 1: Presentation of Financial Statements, which is effective for annual periods beginning on or after 1 January 2009. A business entity adopting IFRS must include:

a Statement of Comprehensive Income or two separate statements comprising: 1. an Income Statement displaying components of profit or loss and 2. a Statement of Comprehensive Income that begins with profit or loss (bottom line of the income statement) and displays the items of other comprehensive income for the reporting period. (IAS1.81)
All non-owner changes in equity (i.e. comprehensive income ) shall be presented in either in the statement of comprehensive income (or in a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity. Comprehensive income for a period includes profit or loss (net income) for that period and other comprehensive income recognised in that period. All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. (IAS 1.88) Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income. (IAS 1.89)
[edit] Items and disclosures

The statement of comprehensive income should include:[3] (IAS 1.82) 1. Revenue 2. Finance costs (including interest expenses) 3. Share of the profit or loss of associates and joint ventures accounted for using the equity method 4. Tax expense 5. A single amount comprising the total of (1) the post-tax profit or loss of discontinued operations and (2) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation 6. Profit or loss 7. Each component of other comprehensive income classified by nature 8. Share of the other comprehensive income of associates and joint ventures accounted for using the equity method 9. Total comprehensive income The following items must also be disclosed in the statement of comprehensive income as allocations for the period: (IAS 1.83) Profit or loss for the period attributable to non-controlling interests and owners of the parent Total comprehensive income attributable to non-controlling interests and owners of the parent
No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as extraordinary items.
Balance sheet
A c c o u n t a n c y
It h a s b e e n s u g g e st e d t h at B a l a n c e s h
Key concepts
e e t s u b s t a n ti a ti o n b e m e r g e d i n t o t h is a rt ic le o r s e ct i o n. ( D is c
u s s)
P r o p o s e d si n c e F e b r u a r y 2 0 1 0.
Accountant Accounting period Bookkeeping Cash and accrual basis Cash flow forecasting Chart of accounts Journal Special journals Constant item purchasing power accounting Cost of goods sold Credit terms Debits and credits Double-entry system Mark-to-market accounting FIFO and LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Fields of accounting Cost Financial Forensic Fund Management Tax (U.S.) Financial statements Balance sheet Cash flow statement Statement of retained earnings Income statement Notes Management discussion
and analysis XBRL Auditing Auditor's report Financial audit GAAS / ISA Internal audit SarbanesOxley Act Accounting qualifications CA CPA CCA CGA CMA CAT CFA CIIA IIA CTP This box:

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In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3] Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings
and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.
Bookkeeping
Jump to: navigation, search For 'bookkeeping' as a technical programming term, see bookkeeping code. Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually performed by an accountant. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process. A bookkeeper (or book-keeper), also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks." The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer ledger and general ledger. The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
Contents
[hide]

1 Bookkeeping process 2 Bookkeeping systems o 2.1 Single-entry system o 2.2 Double-entry system 3 Daybooks 4 Petty cash book 5 Journals 6 Ledgers 7 Abbreviations used in bookkeeping
8 Chart of accounts 9 Computerized bookkeeping 10 Online bookkeeping 11 Notes and references
[edit] Bookkeeping process

The bookkeeping process refers primarily to recording the [financial effects] of financial transactions only into accounts. The variation between manual and any electronic accounting system stems from the latency between the recording of the financial transaction and its posting in the relevant account. This delay, absent in electronic accounting systems due to instantaneous posting into relevant accounts, is not replicated in manual systems, thus giving rise to primary books of accounts such as Sales Book, Cash Book, Bank Book, Purchase Book for recording the immediate effect of the financial transaction. In the normal course of business, a document is produced each time a transaction occurs. Sales and purchases usually have invoices or receipts. Deposit slips are produced when lodgements (deposits) are made to a bank account. Cheques are written to pay money out of the account. Bookkeeping involves, first of all, recording the details of all of these source documents into multi-column journals (also known as a books of first entry or daybooks). For example, all credit sales are recorded in the sales journal, all cash payments are recorded in the cash payments journal. Each column in a journal normally corresponds to an account. In the single entry system, each transaction is recorded only once. Most individuals who balance their cheque-book each month are using such a system, and most personal finance software follows this approach. After a certain period, typically a month, the columns in each journal are each totaled to give a summary for the period. Using the rules of double entry, these journal summaries are then transferred to their respective accounts in the ledger, or book of accounts. For example the entries in the Sales Journal are taken and a debit entry is made in each customer's account (showing that the customer now owes us money) and a credit entry might be made in the account for "Sale of class 2 widgets" (showing that this activity has generated revenue for us). This process of transferring summaries or individual transactions to the ledger is called posting. Once the posting process is complete, accounts kept using the "T" format undergo balancing, which is simply a process to arrive at the balance of the account. As a partial check that the posting process was done correctly, a working document called an unadjusted trial balance is created. In its simplest form, this is a three column list. The first column contains the names of those accounts in the ledger which have a non-zero balance. If an account has a debit balance, the balance amount is copied into column two (the debit column). If an account has a credit balance, the amount is copied into column three (the credit column). The debit column is then totalled and then the credit column is totalled. The two totals must agree this agreement is not by chance
because under the double-entry rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals do not agree, an error has been made either in the journals or during the posting process. The error must be located and rectified and the totals of debit column and credit column recalculated to check for agreement before any further processing can take place. Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule. For example, the "inventory" account asset account might be changed to bring them into line with the actual numbers counted during a stock take. At the same time, the expense account associated with usage of inventory is adjusted by an equal and opposite amount. Other adjustments such as posting depreciation and prepayments are also done at this time. This results in a listing called the adjusted trial balance. It is the accounts in this list and their corresponding debit or credit balances that are used to prepare the financial statements. Finally financial statements are drawn from the trial balance, which may include:

the income statement, also known as the statement of financial results, profit and loss account, or P&L the balance sheet, also known as the statement of financial position the cash flow statement the statement of retained earnings, also known as the statement of total recognised gains and losses or statement of changes in equity
[edit] Bookkeeping systems

Two common bookkeeping systems used by businesses and other organizations are the single-entry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a revenue and expense journal. Single-entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.
[edit] Single-entry system

The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a checking (cheque) account register but allocates the income and expenses to various income and expense accounts. Separate account records are maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and travel expenses. These days, single entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations. Sample revenue and expense journal for single-entry bookkeeping[1]
No.DateDescriptionRevenueExpenseSalesSales TaxServicesInventoryAdvert.FreightOffice SupplMisc7/13Balance forward1,826.00835.001,218.0098.00510.00295.00245.00150.0083.506 1.5010417/13Printer- Advert flyers450.00450.0010427/13Wholesaler inventory380.00380.0010437/16office supplies92.5092.507/17bank deposit1,232.00 Taxable sales400.0032.00 Out-of-state sales165.00 Resales370.00 Service sales265.00bank7/19bank charge23.4023.4010447/19petty cash100.00100.00TOTALS3,058.001,880.902,153.00130.00775.00675. 00695.00150.00176.00184.90[edit] Double-entry system
Main article: double-entry bookkeeping system
[edit] Daybooks
A daybook is a descriptive and chronological (diary-like) record of day-to-day financial transactions also called a book of original entry. The daybook's details must be entered formally into journals to enable posting to ledgers. Daybooks include:

Sales daybook, for recording all the sales invoices. Sales credits daybook, for recording all the sales credit notes. Purchases daybook, for recording all the purchase invoices. Purchases credits daybook, for recording all the purchase credit notes. Cash daybook, usually known as the cash book, for recording all money received as well as money paid out. It may be split into two daybooks: receipts daybook for money received in, and payments daybook for money paid out. Petty Cash daybook, for recording small value purchases paid for by cash General Journal daybook, for recording journals
[edit] Petty cash book

A petty cash book is a record of small value purchases usually controlled by imprest system. Items such as coffee, tea, birthday cards for employees, stationery for office working, a few dollars if you're short on postage, are listed down in the petty cash book.
[edit] Journals
journals are recorded in the general journal daybook. A journal is a formal and chronological record of financial transactions before their values are accounted for in the general ledger as debits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (i.e. sales, cash receipts, revenue, etc.) making transactions easier to summarize and reference later. For every
debit journal entry recorded there must be an equivalent credit journal entry to maintain a balanced accounting equation.[2]
[edit] Ledgers
A ledger is a record of accounts. These accounts are recorded separately showing their beginning/ending balance. A journal lists financial transactions in chronological order without showing their balance but showing how much is going to be charged in each account. A ledger takes each financial transactions from the journal and records them into the corresponding account for every transaction listed. The ledger also sums up the total of every account which is transferred into the balance sheet and income statement. There are 3 different kinds of ledgers that deal with book-keeping. Ledgers include:

Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the financial transactions made by customers to the business. Purchase ledger is a ledger that goes hand and hand with the Accounts Payable account. This is the purchasing transaction a company does. General ledger representing the original 5 main accounts: assets, liabilities, equity, income, and expenses
[edit] Abbreviations used in bookkeeping

A/C Account Acc Account A/R Accounts receivable A/P Accounts payable B/S Balance sheet c/d Carried down b/d Brought down c/f Carried forward b/f Brought forward Dr Debit record Cr Credit record G/L General ledger; (or N/L nominal ledger) P&L Profit and loss; (or I/S income statement) PP&E Property, plant and equipment TB Trial Balance GST Goods and services tax VAT Value added tax CST Central sale tax TDS Tax deducted at source AMT Alternate minimum tax EBITDA Earnings before interest, taxes, depreciation and amortisation EBDTA Earnings before depreciation, taxes and amortisation EBT Earnings before taxes
EAT Earnings after tax PAT Profit after tax PBT Profit before tax Depr Depreciation Dep'n Depreciation
[edit] Chart of accounts

A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities include sole trader, partnership, trust and company. [3]
[edit] Computerized bookkeeping

Computerized bookkeeping removes many of the paper "books" that are used to record transactions and usually enforces double entry bookkeeping. The term bookkeeping has an unrelated technical meaning in computer programming. Bookkeeping code is code that does not contain business logic but is needed to keep the program working properly.
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1 Overview 2 Advantages 3 Disadvantages4 See also

Accounting Principles

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ACCOUNTING PRINCIPLES IN INDIA Accountancy is the process of communicating financial information about a business entity to users such as shareholders

Basic forms of ownership

Competencies Education required

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Single-entry bookkeeping system

Double-entry bookkeeping system

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8 Notes and references 9 Further reading 10 External links

[edit] Accounting entries

[edit] Traditional approach

[edit] Accounting equation approach

[edit] Simple computerised approach

[edit] Books of accounts

[edit] Debits and credits

De bit De cre as e De cre as e In cre as

[edit] Double entry example

[edit] Purchase invoice daybook

control a/c Each individual line is posted as follows:

The totals of each column are posted as follows:

Double-entry has been observed because Dr = 2600 and Cr = 2600.

[edit] Bank payments daybook

[edit] Supplier ledger cards

Date 17 July 2006 31 July 2006

Date 19 July 2006 31 July 2006

==== 1 August Balance 2006 b/d

The totals of each column are posted as follows:

Double-entry has been observed because Dr = 5700 and Cr = 5700.

[edit] Customer ledger cards

Date 2 July 2006 29 July 2006

1 August Balance b/d 2006

[edit] General (nominal) ledger

Date 31 May 2006

Date 10 May 2010

Reference Amount c/d 1600 ------1600 ====

1 August 2010 Date 28 July 2006

Reference Amount c/d 400 ------400 ====

1 August 2006 Date 31 July 2006

Details Bank receipts daybook

1 August 2006 Date 1 July 2006 31 July

Invoice Daybook ------5700 ====

2006 ------5700 ====

1 August 2006 Date 31 July 2006 31 July 2006

Details Bank Payments Daybook Balance

Reference Amount b/d PDB 0 2600 ------2600 ==== b/d 700

[edit] Bank account

Daybook Bank Payments Daybook Bank Payments Daybook Balance

BP702 BP703 c/d

900 400 200 ------2500 ====

[edit] Unadjusted trial balance

[edit] Profit-and-loss statement and balance sheet

1400 ------2700 ====

x Net Current Assets x x Capital & Reserves x Revenue Reserves a/c x x x

2700 ==== 2700 ------2700 ====

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[edit] Trial balance limitations

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Credit 296,397 --------

[edit] Operating section

[edit] Non-operating section

[edit] Irregular items

[edit] Earnings per share