English For The Students of Accounting

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English for the students of Accounting
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In the name of God
Mehdi Nabipour Afrouzi

Lecturer at university
Hooman Shababi
Faculty member at Rahedanesh Institute of Higher Education
Morteza Malakian Kalebasti

Faculty member at Parsa Institute of Higher Education
1
‫مشخصات ناشر‬
2
Acknowledgement
We would like to express our appreciation to the editor for his precious comments
and help. Also our thanks go to our parents and professors who encouraged us to
improve our English knowledge when we were students. We should mention here
that we are responsible for any mistakes in this book so any useful comments and
corrections would be appreciated.
Authors
3
Preface
Our goal in writing this text is to encourage the students of accounting to develop
their reading and comprehension skills. The text does this by informing students with
the core concepts of accounting. The reading passages have been taken from basic
text books sources. Care has been taken to include various topics from accounting.
Several exercises have also been provided which should be done by students
individually or in a team environment. The Authors also added some thorough
understanding questions in some chapters that can be used by instructors as a class-
based or a research based activities to prepare students with more knowledge.
4
Table of Contents
1. Why Do We Need Accounting?...................................................................
2. Accounting Principles…………………………………...............................
3. Accounting Information System (AIS)…………………………………..
4. Analysis of Financial Statements ………..………………………...........
5. Accounting and Reporting Cycle……………………..............................
6. Analyzing and Classifying Transactions….………….............................
7. Income Statement……………………………………...............................
8. Balance Sheet…………………………………………..............................
9. Cash Flow of Statement ………………….……………...........................
10. Accounting for Partnership…………………………...............................
11. Accounting for Corporations………………………................................
12. Decision Making………………………………………………………….
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‫‪English for the students of Accounting‬‬
‫سخنی با خوانندگان‬
‫عالقه و توجه به زبان تخصصی و کوشش در زمینه ارتقای این مهارت بیشک عاملی برای موفقیتهای علمی و حرفه ای شخص محسوب می‬
‫گردد‪ .‬شایان ذکر است‪ ،‬صرف ًا آگاهی از معانی لغات برای ترجمه متون تخصصی کافی نخواهد بود لذا جهت درک کامل و ترجمه روان‬
‫متون انگلیسی توجه به نکات زیر مورد تاکید میباشد‪ .‬به طور مثال به یک نمونه از کلمات هم خانواده می توان اشاره کرد‪:‬‬
‫‪Count‬‬ ‫حساب کردن‬
‫‪Accounting‬‬ ‫حسابداری‬
‫‪Accountant‬‬ ‫حسابدار‬
‫‪Account‬‬ ‫حساب‬
‫‪Accountability‬‬ ‫مسؤولیت پاسخگویی‬
‫هما ن طوری که آموزنده با معنی یکی از کلمات فوق آشنا باشد با پیدا کردن جایگاه و نقش کلمات دیگر به راحتی به معنی آنها دست‬
‫می یابند‪ .‬بنابراین حفظ کردن همه کلمات و یا به همراه داشتن فرهنگ لغات کاری غیر ممکن به نظر می رسد‪ ,‬برای یافتن نقش و‬
‫معنی کلمات به نکاتی جهت تسلط و ارتقا بخشیدن به ترجمه و اتکای بیش از حد به فرهنگ لغات بیان می شود‪.‬‬
‫بخش اول‪ :‬آگاهی از نقش و معنی کلمات‬
‫به پسوندها و پیشوندهای زیر توجه داشته باشید تا معنی و نقش لغات (کلمات) را حدس بزنید‪:‬‬
‫پسوند ها‪:‬‬
‫الف) پسوند های صفت ساز‪:‬‬
‫‪1. able – ible‬‬
‫‪Pay + able= payable‬‬ ‫پرداختنی‬
‫‪Rely + able= reliable‬‬ ‫قابل اتکا‬
‫‪Comprehend + ible= comprehensible‬‬ ‫قابل فهم‬
‫‪Response + ible= responsible‬‬ ‫مسول‬
‫‪2. ive, ative‬‬

‫‪Protect + ive= protective‬‬ ‫محافظ‪-‬حفاظتی‬
‫‪Object + ive= objective‬‬ ‫هدف‪-‬عینی‬
‫‪Compare + ative= comparative‬‬ ‫مقایسه ای‬
‫‪Conserve + ative= conservative‬‬ ‫محافظه کارانه‬
‫‪6‬‬
3. ed
Prefer + ed= preferred stock ‫سهام ممتاز‬
Defer + ed= deferred charges ‫مخارج انتقالی به دوره های آتی‬
4. ful
Success + ful= successful ‫موفق‬
Use + ful= useful ‫سودمند‬-‫مفید‬
5. ic, ical
Economy + ic= economic ‫اقتصادی‬
History + ic= historic ‫مهم‬-‫تاریخی‬
6. ish
Self + ish= selfish ‫خودخواه‬
7. less
Value + less= valueless ‫بی ارزش‬
Price + less= priceless ‫بسیار گران قیمت‬
8. ous
Continue + ous= continuous ‫مستمر‬
Simultaneity + ous= simultaneous ‫همزمان‬
9. Y
Wealth + y=wealthy ‫ثروتمند‬
:‫ب) پسوند های اسم ساز‬

1. ance, ence
Appear + ance= appearance ‫ ظهور‬-‫ظاهر‬
Exist + ence= existence ‫وجود‬
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2.tion, sion
Examine + tion= examination ‫ آزمون‬-‫معاینه‬
Product + tion= production ‫تولید‬
Comprehend + sion= comprehension ‫درک‬-‫فهم‬
Extend + sion= extension ‫تمدید‬-‫توسعه‬
3. ee
Lease + ee= 8ctiv ‫مستاجر‬
Audit + ee= auditee ‫صاحبکار‬
4. er, or
Learn +er= learner ‫ شاگرد‬-‫دانش آموز‬
Employ +er=employer ‫کارفرما‬
Audit +or= Auditor ‫حسابرس‬
Direct + or= director ‫عضو هیئت مدیره‬-‫مدیر‬
5. ry
Brave + ry= bravely ‫شجاعت‬
Bake + ry= bakery ‫نانوایی‬
6. hood
Child + hood=childhood ‫کودکی‬
Neighbor + hood= neighborhood ‫همسایگی‬
7. ity
Regular + ity= regularity ‫ترتیب‬-‫نظم‬
8
Responsible +ity= responsibility ‫مسؤولیت‬
8. logy
Bio + logy= biology ‫زیست شناسی‬
Psyche + logy= psychology ‫روان شناسی‬
9. ment
Develop + ment= development ‫توسعه‬
Employ + ment= employment ‫استخدام‬
10. ness
Complete +ness= completeness ‫کامل‬
Useful + ness= usefulness ‫ سودمند‬-‫مفید‬
11. ship
Partner + ship= partnership ‫مشارکت‬-‫شریک‬
Steward +ship= stewardship ‫مباشرت‬
:‫ج) پسوندهای فعل ساز‬
1. ate
Active + ate= activate ‫فعال کردن‬
Regular + ate= regulate ‫منظم کردن‬
2. ify
Class + ify= classify ‫طبقه بندی کردن‬
3. ise, ize
Real + ise or ize= realise or realize ‫پی بردن‬
Organ + ise or ize= organize or organize ‫سازماندهی کردن‬
9
‫د)پسوند اسم یا صفت ساز‬
1. ant, ent
Account + ant= accountant ‫حسابدار‬
Consult + ant= consultant ‫مشاور‬
Urge + ent= urgent ‫فوری‬
Differ + ent= different ‫ گوناگون‬- ‫متفاوت‬
‫ح) پسوند صفت یا فعل ساز‬
1. en
Gold +en= golden ‫طالئی‬
Wood + en= wooden ‫چوبی‬
Dark +en=darken ‫تیره کردن‬-‫تاریک شدن‬
Strength + en= strengthen ‫نیرو بخشیدن‬-‫تقویت کردن‬
‫پیشوند ها‬
‫الف ) پیشوند منفی ساز‬
1. dis
Dis + advantage= disadvantage ‫عیب‬
Dis + ability charge= disability charge ‫هزینه از کار افتادگی‬
2. ir
Ir + regular= irregular ‫بی قاعده‬
Ir + responsible= irresponsible ‫غیر مسول‬
3. non
Non + cash asset= noncash asset ‫دارایی غیر نقد‬
Non + current= noncurrent ‫غیر جاری‬
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4. un
Un + expired cost= unexpired cost ‫هزینه منقضی نشده‬
Un + favorable variance= unfavorable variance ‫انحراف نامساعد‬
‫ب) پیشوند فعل ساز‬
1. en
En + large= enlarge ‫بزرگ کردن‬-‫بزرگ شدن‬
‫پ) سایر پیشوند ها‬
1. anti
Anti + trust= antitrust ‫ضد انصار‬
Anti + dilution= antidilution )‫ضد کاهش (در مورد درآمد رقیق شده هر سهم‬
2. co
Co + operative= cooperative ‫شرکت تعاونی‬
Co + incident= coincident ‫همزمان‬
3. fore
Fore + see= foresee ‫پیش بینی کردن‬
Fore + cast= forecast ‫پیش بینی کردن‬
4. mid
Mid + term= midterm ‫میان دوره‬
5. mis
Mis + classification= misclassification ‫طبقه بندی نادرست‬
Mis + lead= mislead ‫گمراه کردن‬
6. multi
Multi + form= multiform ‫چند گونه –چند شکل‬
Multi + national company= multinational company ‫شرکت چند ملیتی‬
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7. over
Over + audit= overaudit ‫رسیدگی بیش از اندازه‬
Over + applied overhead= overapplied overhead ‫اضافه جذب سربار‬
8. re
Re + enter= re-enter ‫ثبت مجدد‬
Re + acquisition= reacquisition ‫باز خرید‬
9. self
Self + liquidation loan= self-liquidation loan ‫وام خود پداز‬
Self + employment= self-employment ‫اشتغال آزاد‬
‫ از جمله این‬.‫( استفاده فراوانی می شود‬passive( ‫در متن های عمومی انگلیسی از جمله در زبان تخصصی از ساختار مجهول‬
:‫ساختارها در زمان مجهول عبارت خواهد بود از‬
To be + pp ‫حال ساده‬
was/were + pp ‫گذشته ساده‬
have/has + been + pp ‫حال کامل‬
had +been + pp ‫گذشته کامل‬
Hill + be + pp ‫آینده‬
:‫ وقتی ساختار مجهول بعد از افعال کمکی قرار گیرند به صورت زیر به کار می روند‬:‫تذکر‬
Can/could/should/will/would/must…..+ be + pp
12
Chapter One
Why Do We Need Accounting?
Introduction
Accounting has rightly been termed as the language of the business. The basic function of a
language is to serve as a means of communication. Accounting also serves this function. It
communicates the results of business operations to various parties who have some stake in the
business viz., the proprietor, creditors, investor, government and other agencies, though accounting
is generally associated with business but it is not only business which makes use of accounting.
The need for accounting is all the greater for a person who is running a business. The person must
know:
1) What the person owns?
2) What the person owes?
3) Whether the person has earned a profit or suffered a loss on account of running a business?
4) What is the person financial position i.e. whether the person will be in a position to meet all his
commitments in the near future or the person is in the process of becoming a bankrupt?
What is Accounting?
Accounting is concerned with collecting, analyzing and communicating financial information. The
purpose is to help people who use this information to make more informed decisions. If the
financial information that is communicated is not capable of improving the quality of decisions
made, there would be no point in producing it. Sometimes the impression is given that the purpose
of accounting is simply to prepare financial reports on a regular basis. While it is true that
accountants undertake this kind of work, it does not represent an end in itself. The ultimate purpose
of the accountant’s work is to give people better financial information on which to base their
decisions.
Definition of Accounting
Accounting is concerned with the processes of recording, sorting, and summarizing data resulting
from business operations and events. Accounting to American Accounting association accounting
is ‘the process of identifying, measuring, and communicating economic information to permit
informed judgements and decisions by users of the information’.
13
The definition given by the American Institute of Certified Public Accountants clearly brings out
the meaning and functions of Accounting. According to it accounting is “the art of recording,
classifying and summarizing in a significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character and interpreting the results thereof.”
Purpose and Nature of Accounting

Every element of society_ from the individual to an entire industry or government branch has to
make decisions on how to allocate its resources. Accounting is the process that aids these decisions
by (1) Recording (2) Classifying (3) Summarizing and (4) Reporting business transactions and
interpreting their effects on the affairs of the business entity.
This definition makes it clear that the recording of data, of bookkeeping, is only the first and
simplest step in the accounting process. The financial information provided by accounting is used
both directly and indirectly, as summarized in the following.
Direct users: Owners- Managers- Creditors- Suppliers- Taxing authorities- Employees- Customers
Indirect users: Labor unions- Financial analysts- Stock exchanges- Lawyers- Regulatory
authorities- Financial press- Trade associations.
An analysis of the definition brings out the following functions of accounting:
Recording: that is the basic function of accounting. It is essentially concerned with not only
ensuring that all business transactions of financial character are in fact recorded but also that they
are recorded in an orderly manner. Recording is done in the book “Journal”.
Classifying: this is concerned with the systematic analysis of the recorded data, with a view to
group transactions or entries of one nature at one place. The work of classification is done in the
book termed as “Ledger”. This book contains on different pages' individual account heads under
which all financial transactions of similar nature are collected.
Summarizing: this involves presenting the classified data in a manner which is understandable and
useful to the internal as well as external end-users of accounting statements.
Objectives of Study Accounting

The following are the main objectives of accounting:
1. To keep systematic records. Accounting is done to keep a systematic record of financial
transactions. In the absence of accounting there would have been terrific burden on human memory
which in most cases would have been impossible to bear.
14
2. To protect business properties. Accounting provides protection to business properties from

unjustified and unwarranted use. This is possible on account of accounting supplying the following
information to the manager or the proprietor:
A) The amount of the proprietor’s funds invested in the business.
B) How much the business has to pay to others?
C) How much the business has to recover from others?
D) How much the business has in the form of; a) fixed assets, b) cash in hand, c) cash at bank, d)
stock of raw materials, work-in-progress and finished goods?
3. To ascertain the operational profit or less. Accounting helps in ascertaining the net profit earned or
less suffered on account of carrying the business. This is done by keeping a proper record of
revenues and expenses of a particular period. The Profit and Less account is prepared at the end of
a period and if the amount of revenue for the period is more than the expenditure incurred in earing
that revenue, there is said to be a profit. In case the expenditure exceeds the revenue, there is said to
be a loss.
4. To ascertain the financial position of the business. The Profit and Loss accounting gives the amount
of profit or loss made by the business during a particular period. However, it is not enough. The
businessman must know about his financial position i.e. where he stands: what he owes and what
he owns? This objective is served by the Balance Sheet or Position Statement. The balance sheet is
a statement of assets and liabilities of the business on a particular date.
5. To facilitate rational decision making. Accounting these days has taken upon itself the task of
collection, analysis and reporting of information at the required points of time to the required levels
of authority in order to facilitate rational decision making.
Who are the users of accounting information?
For accounting information to be useful, the accountant must be clear for whom the information is
being prepared and for what purpose the information will be used. There are likely to be various
groups of people (known as ‘user groups’) with an interest in a particular organization, in the sense
of needing to make decisions about it. Figure 1, shows Main users of financial information relating
to a business.
15
Owners Customers Competitors
Managers Employees and

their
Business Representative
Lenders Government
Suppliers Investment Community

Representative
Analysis
Figure (1): Main users of financial information relating to a business.
Comprehension Exercises
A. State whether each of the following statements is “True” or “False”.
-------1. Accounting is the language of business.
-------2. Accounting can be useful only for recording business transactions.
-------3. Accounting records only transactions which are of a financial character.
-------4. Book-keeping and Accounting are synonymous terms.
-------5. Accounting is as old as money itself.
B. Indicate the best answer for each of the following questions:

1. The prime function of accounting is to:
a) Record economic data.
b) Provide the informational basis for action.
c) Classifying and recording business transactions.
d) Attain non-economic goals.
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2. The basic function of financial accounting is to:

a) Record all business transactions.
b) Interpret the financial data.
c) Assist the management in performing functions effectively.
3. Management accounting provides invaluable services to management in performing:

a) All management functions.
b) Coordinating management functions.
c) Controlling functions
4. Book-keeping is mainly concerned with:

a) Recording of financial data relating to business operations
b) Designing the systems in recording, classifying, summarizing the recorded data.
c) Interpreting the data for internal and external end users.
C. Oral Questions
1. Define Accounting.
2. State its functions
3. How does it differ from book-keeping?
D. Translate the Following Passage into Farsi

Accounting and bookkeeping have been around for just about as long as humans have engaged in
trade and commerce. This makes sense, because if we want to do business with each other in any
kind of organized way we need a system to keep track of all of these exchanges. And that's where
accounting comes in. Double-entry bookkeeping emerged in Medieval Europe and has been used
by business big and small ever since. Thankfully, today we have handy accounting software to help
us manage our financial records and no longer have to rely on manually-completed ledgers and
spreadsheets. There are two basic categories of accounting: financial accounting and managerial
accounting. Financial accounting deals with information that is made public to stockholders,
customers, creditors, and regulatory bodies. Managerial accounting deals with information that is
not shared with the public, such as salaries, profits, and the cost of goods produced. The goal of
managerial accounting is to help company managers and supervisors make financial decisions,
whereas the goal of financial accounting is to provide important financial information about your
17
company to those outside of the business. For most small business owners, "accounting" is
managerial accounting.
E. Find the Farsi equivalents of the following terms and write them in the spaces provided.
New Words Meaning(s) New Words Meaning(s)
Recording Classifying
Summarizing Reporting
Owners Creditors
Managers Suppliers
Lenders Competitors
Government Investment
Representative Undertake
Certified Ledger
Measure Bookkeeping
Fixed Assets Balance Sheet
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Chapter Two
Accounting Principles
Introduction
It has already been stated in the first chapter that accounting is the language of business through
which normally a business house communicates with the outside world. In order to make this
language intelligible and commonly understood by all, it is necessary that it should be based on
certain uniform scientifically laid down standards. These standards are termed as accounting
principles.
Accounting principles may be defined as those rules of action or conduct which are adopted by the
accountants universally while recording accounting transactions. They are a body of doctrines
commonly associated with the theory and procedures of accounting, serving as an explanation of
current practices and as a guide for selection of conventions or procedures where alternative exist.
These principles can be classified into two categories: 1) Accounting Concepts, 2) Accounting
Conventions
1. Accounting Concepts
Introduction
The term ‘concept’ includes those basic assumptions or conditions upon which the science of
accounting is based. The following are the important accounting concepts:
A) Separate entity concept. B) Going concern concept.
C) Money measurement concept. D) Cost concept.
E) Dual aspect concept. F) Accounting period concept.
G) Periodic matching of cost and revenue concept. H) Realization concept.
A. Separate entity concept: In accounting business is considered to be a separate entity the

proprietor(s). It may appear to be ludicrous that one person can sell goods to himself but this
concept is extremely helpful in keeping business affairs strictly free from the effect of private
affairs of the proprietor(s).
B. Going Concern Concept: According to this concept it is assumed that the business will
continue for a fairly long time to come. There is neither the intention nor the necessity to liquidate
the particular business venture in the foreseeable future. On account of this concept, the accountant
19
while valuing the asset does not take into account forced sale value of assets. Moreover, he charges
depreciation on fixed assets on the basis of their expected lives rather than or their market values.
C. Money Measurement Concept: Accounting records only monetary not find place in the books
of accounts though they may be very useful for the business. Measurement of business events in
money helps in understanding the state of affairs of the business in a much better way.
D. Cost Concept: The concept is closely related to going concern concept. According to this
concept; a) an asset is ordinarily entered on the accounting records at the price paid to acquire it.
And b) this cost is the basis for all subsequent accounting for the asset.
The cost concept does not mean that the asset will always be shown at cost. It has also been stated
above that cost becomes the basis for all future accounting for the asset. It means that asset is
recorded at cost at the time of its purchase but it may systematically be reduced in its value by
charging depreciation.
E. Dual aspect concept: This is the basic concept of accounting. According to this concept every
business transaction has a dual effect. The financial condition or position of a business enterprise is
represented by the relationship of assets to liabilities and capital. This equation expresses the
equality of the assets on one side with the claims of the creditors and owners on the other side:
Assets= Liabilities + Capital
Assets: properties that are owned and have monetary value for instance, cash, inventory, buildings,
equipment…
Liabilities: Amounts owed to outsiders, such as notes payable, accounts payable, bonds
payable…....
Capital: The interest of the owners in an enterprise.
F. Accounting Period Concept: According to this concept, the life of the business is divided into
appropriate segments for studying the results shown by the business after each segment.
G. Periodic matching of costs and revenues concept: This is based on the accounting period
concept. The paramount objective of running a business is to earn profit. In order to ascertain the
profit made by the business during a period, it is necessary that "revenues" of the period should be
matched with the costs (expenses) of that period. The term ‘matching’ means appropriate
association of related revenues and expenses. In order words, income made by the business during
a period can be measured only when the revenue earned during a period is compared with the
expenditure incurred for earning that revenue.
20
H. Realization Concept: According to this concept revenue is recognized when a sale is made.
Sale is considered to be made at the point when the property in goods passed to the buyer and the
person becomes legally liable to pay.
2. Accounting Conventions
Introduction
The term ‘conventions’ includes those customs or traditions which guide the accountant while
preparing the accounting statements. The following are the important accounting conventions:
A) Convention of Conservatism. B) Convention of full Disclosure.
C) Convention of Consistency. D) Convention of Materiality
A. Conservatism: In the initial stages of accounting certain anticipated profits which were
recorded, did not materialize. This resulted in less acceptability of accounting figures by the end
users. On account of this reason, the accountants follow the rule ‘anticipate no profit but provide
for all possible losses’ while recording business transactions.
B. Full Disclosure: according to this convention accounting reports should disclose fully and fairly
the information they purport to represent. They should be honestly prepared and sufficiently
disclose information which is of material interest to proprietors, present and potential creditors and
investors.
C. Consistency: According to this convention accounting practices should remain unchanged from
one period to another. For example, if stock is valued at “cost or market price whichever is less”,
this principle should be followed year after year. Similarly, if depreciation is charged on fixed
assets according to diminishing balance method, it should be done year after year.
D. Materiality: According to this convention the accountant should attach importance to material
details and ignore insignificant details. Thus the term ‘materiality’ is a subjective term. “Materiality
means the characteristic attaching to a statement, fact or item whereby its disclosure or method of
giving it expression would be likely to influence the judgement of a reasonable person”.
21
A. State whether each of the following statements is “True” or “False”
------1. Accounting principles are rules of action or conduct which are adopted by the accountants
universally while recording accounting transactions.
------2. It is on the basis of going concern concept that the assets are always valued at market price.
------3. The convention of disclosure implies that all material information should be disclosed in the
accounts.
-----4. The convention of conservatism takes into account all prospective profits but leaves all
prospective losses.
------5. Since the life of the business is assumed to be indefinite, the financial statements of the
business should be prepared only when it goes into liquidation.
------6. In accounting all business transitions are recorded as having a dual aspect.
B. Indicate the best answer for each of the following questions

1. Accounting principles are generally based on:
a) practicability b) subjectivity c) convenience in recording
2. The system of recording transactions based on dual aspect concept is called:
a) double account system b) double entry system c) single entry system
3. The practice of appending notes regarding contingent liabilities in accounting statements is in
pursuant to:
a) convention of consistency b) money measurement concept
c) convention of conservatism d) convention of disclosure
4. According to money measurement concept, the following will be recorded in the books of
accounts of the business:
a) health of the managing director of the company b)quality of company’s goods c)value of plant and machinery
5. The convention of conservatism is applicable:

a) in providing for discount on creditors b) in making provision for bad and doubtful debts c)providing for depreciation
6. The convention of conservatism when applied to balance sheet, results in:

a) understatement of assets b) understatement of liabilities c) overstatement of capital
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C. Oral Questions
1. What are the accounting concepts and conventions?
2. Explain any three of the following accounting concepts:
a) Money measurement concept b) Business entity concept c) Going concern concept
d) Realization concept d) Cost concept
3. Explain the various accounting concepts and conventions.
4. Explain: a) Dual aspect Concept b) Business Entity Concept

Accounting is essential if you want to be able to grow your business in a way that can be
measured and predicted. Having a system of tracking your business' assets, liabilities, and income
lets you to make smart, informed business decisions based on the past performance and present
financial health of your company. With a clear, organized accounting system you can not only
analyze your company's financial data but also help it grow and profit. Sound accounting also helps
you satisfy your customers. Knowing where your company stands financially in terms of income
and expenses will help you better understand what you need to do in the future to maintain that
level of customer satisfaction and grow your business. Need more evidence? Accounting also helps
you track who owes you what, what you owe to who, manage payroll records, track loan and
interest repayments, attract potential investors, maintain a budget, and perhaps most importantly,
sets you up with the financial data you need when it comes time to file and pay your company's
taxes. Handling company's accounting really depends on the size of your business and how quickly
you expect to grow. While a public company will normally appoint a Chief Financial Officer
(CFO) to handle the company's finances, a smaller company may find it useful to hire an external
accountant on a part-time basis to help with invoicing and keeping accounts up to date. Your
company's accounting may also be handled by an in-house accountant or HR staff. And for those
that are just starting out, they're usually the one handling the accounting. And that's a good thing!
It's important that entrepreneurs have a good grasp on the business finances, especially in the early
days. Whoever handles the accounting, good accounting software is going to make their job a
whole lot easier.
Convention Concept
Separate Entity Going Concern
Dual Aspect Realization
Periodic Matching Asset
Liability Capital
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Revenue Expense
Conservatism Full Disclosure
Consistency Materiality
Cost Enterprise
Depreciation Claim
24
Chapter Three
Accounting Information System (AIS)
Introduction
The study of accounting information systems (AISs) is, in large part, the study of the application
of information technology (IT) to accounting systems. This chapter describes the ways that
information technology affects financial accounting, managerial accounting, auditing, and taxation.
We begin by answering the question ‘‘what are accounting information systems’’ and then look at
some new developments in the field. Following this, we will examine some traditional roles of
AISs in commerce.
Why should you study accounting information systems? There are many reasons, which we will
review briefly in this chapter, but one of the most important is because of the special career
opportunities that will enable you to combine your study of accounting subjects with your interest
in computer systems. In today’s job market, accounting employers expect new hires to be computer
literate. In addition, a large number of specialized employment opportunities are available to those
students who possess a deeper understanding of computer subjects and can bring advanced
computer skills to accounting jobs. The last part of this chapter describes a number of special career
opportunities for those with an interest in AISs.
What Is an Accounting Information System?

A system is a framework that exists for the benefit of one or more defined objectives. Systems
ordinarily use resources and are subject to constraints. They operate within an environment
requiring the specification of the boundaries between the system and the environment. Most
systems have both inputs and outputs. An accounting information system is a delivery system for
accounting information. Its purposes are:
• To meet an organization’s statutory reporting requirements.
• To provide relevant and accurate accounting information to those who need it when they need it.
• To conduct or at least enable most business processes ranging from the recording of sales orders
to the reconciliation of bank accounts after liabilities have been paid.
• To protect the organization from possible risks stemming from abuse of accounting data or of the
system itself.
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A Definition of Accounting Information Systems

Figure 1 suggests that accounting information systems (AISs) stand at the crossroads of two
disciplines: ‘‘accounting’’ and ‘‘information systems.’’ Thus, the study of AISs is often viewed as
the study of computerized accounting systems. But because we cannot define an AIS by its size; it
is better to define it by what it does.
Definition: An accounting information system is a collection of data and processing procedures
that creates needed information for its users.
FIGURE 1 Accounting information systems exists at the intersection of two important disciplines:
(1) accounting and (2) information systems.
Accounting
Accounting Information
Information
systems
Systems
Accounting; you probably have a pretty good understanding of accounting subjects because you
have already taken one or more courses in the area. Thus, you know that the accounting field
includes financial accounting, managerial accounting, and taxation. Accounting information
systems are used in all these areas—for example, to perform tasks in such areas as payroll,
accounts receivable, accounts payable, inventory, and budgeting. In addition, AISs help
accountants maintain general ledger information, create spreadsheets for strategic planning, and
distribute financial reports. Indeed, it is difficult to think of an accounting task that is not
integrated, in some way, with an accounting information system.
Information (versus Data); although the terms data and information are often used
interchangeably, it is useful to distinguish between them. Data are raw facts about events that have
little organization or meaning—for example, a set of raw scores on a class examination. To be
useful or meaningful, most data must be processed into useful information—for example, by
sorting, manipulating, aggregating, or classifying them.
Systems; within the accounting profession, the term ‘‘systems’’ usually refers to ‘‘computer
systems.’’ As you probably know, IT advances are changing the way we do just about everything.
Accounting Information Systems and Their Role in Organizations

Information technology (IT) refers to the hardware, software, and related system components that
organizations use to create computerized information systems. IT has been a major force in our
current society and now influences our lives in many personal ways—for example, when we use
26
digital cameras to take pictures, accesses the Internet to make a purchase or learn about something,
or make phone calls to friends and family. It is perhaps less clear that computer technology has also
had profound influences on commerce. In this information age, for example, fewer workers
actually make products, and more of them produce, analyze, manipulate, and distribute information
about business activities. These individuals are often called knowledge workers. Companies find
that their success or failure is often dependent on the uses or misuses of the information that
knowledge workers manage.
27

……….1. Data and information are among an organization's most valuable assets.
……….2. Organizations should take advantage of every opportunity to invest in information
technology in order to improve their AIS.
………..3. The AIS plays an important role in maintaining a strategic position.
………..4. An AIS designer, who is very competent with information technology skills, will be
successful in designing an information system regardless of his/her understanding of the
organization that he/she is designing for.
………..5. When making a design choice regarding the amount of information to provide to a
decision maker, providing more information is always better.

1. Which of the following accurately depicts the components of an accounting information system?
a) People, forms, and reports b) People, procedures, and information technology
c) People, procedures, and paper d) Procedures, paper, and information technology
e) People, paper, and information technology
2. While an accounting information system supports each of the organization's primary activities in
the value chain as well as many of the support activities, it can only be categorized into one of the
activities. Into which activity is the accounting information system categorized?
a) Purchasing b) Service c) Firm Infrastructure
d) Operations e) Technology
3. An accounting information system adds value to an organization in many ways. Which of the
following is not a way in which the AIS adds value?
a) Monitoring outputs for defects to increase product quality
b) Providing more timely information
c) Providing more accurate information
d) Sharing expertise
e) Monitoring outputs for defects to reduce the amount of waste
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f) All of the above are ways in which an AIS adds value to the organization.
4. Which of the following is not one of the three important functions that an accounting information
system performs?
a) It collects and stores data about activities and transactions so that the organization can review
what has happened in the business.
b) It processes data into information that is useful for making decisions that enable management to
plan, execute, and control activities.
c) It assures that management's decisions optimize the profitability of the company.
d) It provides adequate controls to safeguard the organization's assets, including its data. These
controls ensure that the data is available when needed and that it is accurate and reliable.
C. Oral Questions:
1. A successful accounting information system must provide information for management decision
making. In that management’s decisions evolve around an organization’s strategy, the accounting
information system should be designed to support the organization’s strategy. Describe the two
basic strategies suggested by Michael Porter and identify an organization that you believe follows
each strategy. Be sure to describe why you believe that the organization follows the strategy you
suggest.
2. In addition to supporting a basic strategy as discussed in question 1, each organization also
chooses strategic positions. Define and discuss the three strategic positions and give an example of
each strategic position. Consider if any of your examples use more than one strategic position.
3. Within the value chain of an organization there are five primary activities and four support
activities. Describe how an accounting information system fits into the value chain of an
organization. Where does it add value?

Initially, accounting information systems were predominantly developed “in-house” as legacy
systems. Such solutions were difficult to develop and expensive to maintain. Today, accounting
information systems are more commonly sold as prebuilt software packages from vendors such as
Microsoft, Sage Group, SAP and Oracle where it is configured and customized to match the
organization’s business processes. As the need for connectivity and consolidation between other
business systems increased, accounting information systems were merged with larger, more
29
centralized systems known as enterprise resource planning (ERP). Before, with separate
applications to manage different business functions, organizations had to develop complex
interfaces for the systems to communicate with each other. In ERP, a system such as accounting
information system is built as a module integrated into a suite of applications that can include
manufacturing, supply chain, human resources. These modules are integrated together and are able
to access the same data and execute complex business processes. With the ubiquity of ERP for
businesses, the term “accounting information system” has become much less about pure accounting
(financial or managerial) and more about tracking processes across all domains of business.
AIS IT
Commerce Financial Accounting
Managerial Accounting Delivery System
Accounts Receivable Accounts Payable
Interchangeability Inventory
Budgeting Data
Information Raw Facts
Knowledge Workers Sort
Manipulate Aggregate
Spreadsheet Strategic Planning
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Chapter Four
Analysis of Financial Statements
Introduction
Analysis of financial statement greatly helps an investor in studying the three “P” i.e., Prospects,
Payment and Protection. The prospects of the concern can be judged by looking to both the present
and future profitability of the concern. The capacity of payment has to be judged on the basis of
present and prospective liquidity of the concern. The protection has to be judged on the basis of the
tangible asset backing which the company enjoys.
Meaning of Financial Statement

The term financial statements generally refer to two statements the Balance sheet and the Income
Statement.
Balance Sheet: it is a statement of the financial position of a business reflecting the assets,
liabilities and capital on a particular date.
Income statement: this is also termed as Profit and Loss account. It matches the revenues and costs
incurred in the process of earning revenues and shows the net profit earned or loss suffered during a
particular period.
Nature of Financial Statements
According to the American Institute of Certified Public Accounting financial statements reflect “a
combination of recorded facts, accounting conventions and personal judgements and the
judgements and conventions applied affect them materially.” This implies that data exhibited in the
financial statements are affected by recorded facts, accounting conventions and personal
judgements.
Recorded facts; the term recorded facts means facts which have been recorded in the accounting
books. Facts which have not been recorded in the financial books are not depicted in the financial
statements, however, material they might be. For example, fixed assets are shown at cost
irrespective of their market or replacement price since such price is not recorded in the books.
Accounting conventions; accounting conventions imply certain fundamental accounting principles
which have been sanctified by long usage. For example, on account of the convention of
conservatism, provision is made for expected losses but expected profits are ignored. This means
31
that the real financial position of the business may be much better than what has been shown by the
financial statements.
Personal judgments; personal judgements have also an important bearing on the financial
statements. For example, the choice of selecting method of depreciation lies on the accountant.
Similarly, the mode of amortization of fictitious assets also depends on the personal judgement of
the accountant.
Meaning of Analysis
Financial statements are indicators of two significant factors:
a) Profitability b) Financial soundness
Analysis of financial statements, therefore, refers to such a treatment of the information contained
in the income statement and the balance sheet so as to afford full diagnosis of the profitability and
financial soundness of the business.
The analysis of financial statements required:
a) Methodical classification of the data given in the financial statements.
b) Comparison of the various inter-connected figures, which is popularly known as
“Ratio Analysis”.
Ratio analysis
After the income statement and balance sheet of the business have been redrafted, the financial
analyst should make a comparative study. Absolute figures as such are unfit for comparison.
Therefore, various accounting ratios are calculated.
Classification of Ratios
Ratios can be classified into two different categories depending upon the basis of classification.
The rational classification has been on the basis of the financial statement to which the
determinants of the ratio belong. On this basis the ratios have been classified as follows: a) Profit
and Loss account ratios i.e. ratios calculated on the basis of the items of the profit and loss account
only, e.g., Gross profit ratio, Stock Turnover ratio etc. b) Balance Sheet Ratio, i.e. ratios calculated
on the basis of the figures of balance sheet only e.g., Current Ratio, Debt-equity Ratio etc. c)
Complex ratio or inter-statement ratios, i.e. ratios based on figures of profit and loss account as
well as the balance sheet, e.g., fixed assets turnover ratio, overall profitability ratio etc.
However, the above basis of classification has been found to be too crude and unsuitable because
analysis of balance sheet and income statement cannot be done in isolation. The have to be studied
together in order to determine the profitability and solvency of the business. In other that ratios
32
serve as a tool for financial analysis, they are now classified as: a) Profitability Ratios b) Turnover
Ratios c) Financial Ratios.
In the following pages we are explaining the ratios covered by each of the above categories in
detail.
A) Profitability Ratios: profitability is an indication of the efficiency with which the operations of
the business are carried on.
B) Turnover Ratios: the turnover (activity) ratios indicate the efficiency with which the capital
employed is rotated in the basis. The overall profitability of the business depends on two factors: a)
the rate of return on capital employed; and b) the turnover, i,e. the speed at which the capital
employed in the business rotates. Higher the rate of rotation, the greater will be the profitability.
C) Financial Ratios: financial ratios indicate about the financial position of the company. A
company is deemed to be financially sound if it is in a position to carry on its business smoothly
and meet all its obligations-both long-term as well as short-term without strain.
The following ratios have been presented throughout this book, and are summarized below.
Liquidity and Best Service Ratios
Current Ratio Current Assets/Current Liabilities A measure of liquidity; the ability to meet
near-term obligations
Quick Ratio (Cash + Short-term Investment+ A narrow measure of liquidity; the ability
Accounts Receivable)/ Current Liabilities to meet near-term obligations
Debt to total Assets ratio Total Debt/Total Assets Percentage of assets financed by long-
term and short-term debt
Debt Total Equity Ratio Total Debt/Total Equity Proportion of financing that is Debt-
Related
Times Interest Earned Ratio Income Before Income Taxes and Ability to Meet Interest Obligations
Interest/ Changes
Turnover Ratios
Accounting Receivable Net Credit Sales/Average Net Accounting Frequency of collection cycle; to monitor
Turnover Ratio Receivable credit policies
Inventory Turnover Ratio Cost of Goods / Average Inventory Frequency of inventory rotation; to
monitor inventory management
Profitability Ratios
Net profit on Sales Ratio Net income / Net Sales Profitability on sales; for comparison and
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trend analysis
Gross profit Margin Ratio Gross Profit/Net Sales Gross profit rate; for comparison and
trend analysis
Return on Assets Ratio (Net Income + Interest Expense)/ Asset utilization in producing returns
Average Assets
Return on Equity Ratio (Net Income-Preferred Dividends)/ Effectiveness of equity investment in
Average Common Equity producing returns
Other Indicators
EPS Income Available to Common/Weighted- Amount of earnings attributable to each
Average Number of Common Shares share of common stock
P/E Market price Per Share/ Earning Per The price of the stock in relation to
Share earning per share
Dividend Rate/Yield Annual Cash Dividend/ Market Price per Direct yield to investors through dividend
Share payments
Dividend Payout Ratio Annual Cash Dividend/ Earning per Share Proportion of earning distributed as
dividends
Book Value “Common” Equity/ Common Shares The amount of stockholders’ equity per
Outstanding common share outstanding
Limitations of Accounting Ratios

Accounting ratios are subject to certain limitations. They are given below:
1. Comparative study required: ratios are useful in judging the efficiency of the business only
when they are compared with the past results of the business or with the results of a similar
business.
2. Limitations of financial statements: Ratios are based only on the information which has been
recorded in the financial statements.
3. Ratios alone are not adequate: ratios are only indicators they cannot be taken as final regarding
good or bad financial position of the business.
4. Window dressing: the term window dressing means manipulation of accounts in a way so as to
conceal vital facts and present the financial statements in a way to show a better position than what
it actually is.
5. No fixed standards: no fixed standard can be laid down for ideal ratios.
34
-----1. Equity to fixed interest bearing securities is Acid Test Ratio.
-----2. Debt equity ratio is solvency ratio.
-----3. Ratio analysis is a technique of planning and control.
-----4. Rate of return on capital employed is a turnover ratio.
-----5. ROI helps in determining the overall profitability of a company.
B. Select the most appropriate answer

1. Ratio of ‘Net Sales ‘to ‘Net working capital’ is:
a) Working capital turnover ratio b) Profitability ratio c) Liquidity ratio
2. Ratio of Net profit before interest and Tax to Sales is:
a) Net operating profit ratio b) Overall profitability ratio c) Solvency ratio
3. Debt equity ratio is:
a) Liquidity ratio b) Solvency ratio c) Profitability ratio
4. Current ratio is a:
a) Solvency ratio b) Financial position ratio c) Turnover ratio
C. Oral (Short-Answer) Questions

1. Explain the meaning of the term” Financial statement”
2. What do you understand by analysis of financial statement?
3. What are the uses of accounting ratios?
4. State the limitations of financial statements.

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a
company's financial statements to make better economic decisions. These statements include the
income statement, balance sheet, statement of cash flows, and a statement of retained earnings.
Financial statement analysis is a method or process involving specific techniques for evaluating
risks, performance, financial health, and future prospects of an organization. It is used by a variety
of stakeholders, such as credit and equity investors, the government, the public, and decision-
makers within the organization. These stakeholders have different interests and apply a variety of
different techniques to meet their needs. For example, equity investors are interested in the long-
35
term earnings power of the organization and perhaps the sustainability and growth of dividend
payments. Creditors want to ensure the interest and principal is paid on the organizations debt
securities (e.g., bonds) when due. Common methods of financial statement analysis include
fundamental analysis, DuPont analysis, horizontal and vertical analysis and the use of financial
ratios. Historical information combined with a series of assumptions and adjustments to the
financial information may be used to project future performance. The Chartered Financial Analyst
designation is available for professional financial analysts.
Prospects Payments
Protection Profitability
Income Statement Profit and Loss Account
Recorded Facts Replacement Price
Personal Judgements Financial Soundness
Ratio Analysis Gross Profit Ratio
Current Ratio Debt-Equity Ratio
Complex Ratio Inter-Statement Ratio
Stock Turnover Ratios Financial Ratios
Quick Ratio EPS
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Chapter Five
Accounting and Reporting Cycle
Introduction
The accounting cycle is a series of steps performed during the accounting period (some
throughout the period and some at the end) to analyze, record, classify, summarize, and report
useful financial information for the purpose of preparing financial statements. In bookkeeping, the
accounting period is the period for which the books are balanced and the financial statements are
prepared. Generally, the accounting period consists of 12 months. However, the beginning of the
accounting period differs according to the company. For example, one company may use the
regular calendar year, January to December, as the accounting year, while another entity may
follow April to March as the accounting period.
Eight Steps in the Accounting Cycle

There are eight steps in the accounting cycle and they are as follows:
 Analyze transactions by examining source documents.
 Journalize transactions in the journal.
 Post journal entries to the accounts in the ledger.
 Prepare a trial balance of the accounts and complete the worksheet (includes adjusting
entries).
 Prepare financial statements.
 Journalize and post adjusting entries.
 Journalize and post-closing.
 Prepare a post-closing trial balance.
Source Documents
To begin the accounting cycle, it is necessary to understand what constitutes a business
transaction. Business transactions are measurable events that affect the financial condition of a
business. Business transactions can be the exchange of goods for cash between the business and an
external party, such as the sale of a book, or they can involve paying salaries to employees. These
37
events have one fundamental thing in common: they have caused a measurable change in the
amounts in the accounting equation, assets = liabilities + stockholders' equity. The evidence that a
business event has occurred is a source document. Sales tickets, checks, and invoices are common
source documents. Source documents are important because they are the ultimate proof that a
business transaction has taken place.
After determining, via the source documents, that an event is a business transaction, it is then
entered into the company books via a journal entry. After all the transactions for the period have
been entered into the appropriate journals, the journals are posted to the general ledger . The trial
balance proves that the books are in balance or that the debits equal the credits. From the trial
balance, a company can prepare their financial statements. After the financials are prepared, the
month end adjusting and closing entries are recorded (journalized) and posted to the appropriate
accounts. After those entries are made, a post-closing trial balance is run. The post-closing trial
balance verifies the debits equal the credits and that all beginning balances for permanent accounts
are in place.
The General Ledger

The General Ledger contains all entries from both the General Journal and the Special Journals.
Highland Yoga
As we walk through the steps of the accounting cycle, consider the following example. After a
number of years as a successful CPA at a national firm, you decide to quit the rat race and pursue
your true love -- yoga. You decide that Atlanta's Virginia-Highland neighborhood would be the
38
perfect place to open an Ashtanga Yoga studio. Even better, your friend Solomon, a certified
instructor, has just moved to town and is willing to teach at the studio. You hurriedly prepare to
open the studio, Highland Yoga, by July 1.
Pre-opening (before July 1)
Prior to opening the business, you make the following transactions:
1. You contribute $4,000 in cash to start the business.
2. You purchase $500 worth of mats and other equipment for use during classes.
3. You purchase an additional $400 worth of mats, equipment, and clothing for sale at the studio.
4. You purchase liability insurance at a total cost of $1,200. The policy covers July 1 through
December31.
July
The following transactions take place during July.
1. You receive cash totaling $800 for classes.
2. Your instructor teaches classes for the month. You agree to pay $600 for the classes; $300 is
paid on July 15, and $300 will be paid on August 3.
3. You pay rent for July of $1,000 on July 1.
4. You use utilities (electricity and water) totaling $200. This amount is payable on August 15.
August
The following transactions take place during August.
1. You receive $1,500 in cash for classes. Of this amount, $1,000 was for classes in August. The
remainder is for 2-month passes allowing unlimited classes in August and September.
2. Your instructor again earns $600 teaching classes; $300 due on August 16 and $300 on
September 1.
3. Utilities total $150, payable September 15.
4. You pay rent of $1,000 on August 1.
5. You sell inventory costing $150 for a revenue of $225.
6. You are worried about money, so your Uncle Rafael makes you an offer. He agrees to loan you
$2,000 in cash. You will need to repay him sometime later, but he doesn't say when.
7. A client is extremely dissatisfied with their class, and demands their money back. Reluctantly,
you agree. The class cost $15.
8. After borrowing money, you decide to withdraw some of your investment in the studio to pursue
other opportunities. You decide to withdraw $1,000.
39

………1. If an adjusting entry is missed, both the income statement and the balance sheet will be
incorrect.
………2. Payment of an insurance policy may be recorded either in the prepaid insurance account,
or the insurance expense account.
………3. The principle of full disclosure requires management judgment; therefore, it is a
management’s discretion whether or not to disclose a negative item in the notes.
………4. Realization (recognition) is the principle that ensures revenues and expenses are recorded
in the same accounting period.
………5. Materiality is determined by management. It can differ from organization to organization
depending on several factors, including the size of the organization.
………6. An adjusting entry could include a debit to an asset and a credit to a liability.
………7. The matching principle requires that all expenses relating to revenue earned in an
accounting period be recorded.
………8. Full disclosure requires that any important change, such as the retirement of the
president, be disclosed in the notes to the financial statements.
………9. Closing entries transfer balance in the revenue and expense accounts to the income
summary account.
………10. If the dividends declared (and recorded in the dividends account) have not been paid,
dividends is not closed to retained earnings.
B. Indicate the best answer for each of the following questions
1. A business transaction can be:

a) Issuing a credit b) Exchanging goods for cash
c) Paying salaries d) All of these answers
2. Which of the following accounts has a normal debit balance?

a) inventory expense b) sales revenue
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c) net sales revenue d) Sales returns and allowances
3. When is journal entry prepared?

a) At the end of the month
b) After examining the source document and determining a business transaction has occurred
c) During the fiscal year
d) At the beginning of the month
4. What is the purpose of cross-indexing?

a) To provide extra information about an entry
b) To make it possible to trace the origin of an entry
c) To make it easy to find an entry later
d) To keep the journal entries organized
5. In the accounting cycle, when is the trial balance prepared?

a) Before closing the books for the month
b) After entering that period's journal entries
c) Before running the financial statements
d) After the entering that period's adjusting entries
6. Adjusting entries should be made?

a) At the end of the fiscal year
b) At a specified time during the month
c) At the end of the accounting period
d) At the time the financials are run
7. What is the first step to take when preparing the financial statements?
a) Preparing a post-closing trial balance
b) Entering the beginning balances
c) Entering the journal entries
d) Preparing the adjusted trial balance
8. Closing the accounting cycle is often referred to as?
41
A) Closing the books b) Posting closing entries

c) Running the month end entries d) Finishing the books
9. When is the post-closing trial balance performed?

a) only at the end of the month
b) before running the financial statements
c) after posting all the journal entries for the month
d) after the closing entries have been posted the General Ledger
10. What does a reversing entry cancel out?

a) An incorrect entry from the prior period
b) An adjusting entry from the prior period
c) An incorrect entry from the current period
d) An entry that was double recorded
C. Oral Questions:
1. What is full cycle accounting?
2. At which stage of the accounting cycle is a work sheet usually prepared?
3. List the steps in the accounting cycle. Would the system still work if any of the steps were
performed out of order?

The Accounting period (Reporting period) is the time period for which a company or
organization reports financial performance and financial position. Normally the accounting period
is defined with respect to the organization's fiscal year, Typically, four quarterly accounting periods
correspond to the organization's fiscal quarters, and an annual accounting period covers the entire
fiscal year. Several of the primary financial accounting reports or financial statements are published
shortly after the end of the accounting period, summarizing activity from the start to the end of the
period. For companies in private industry, these reports include the income statement (or profit and
loss statement), the statement of changes in financial position (or cash flow statement), and the
statement of retained earnings. For government organizations, the report comparable to an income
statement may be called a statement of operations, and for some nonprofit organizations it is called
the statement of activities.
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Accounting Cycle Reporting Cycle
Calendar Year Entity
Journalize Post-Closing Entries
Trial Balance Source Documents
Stockholders' Equity Adjustment
Debit Double-Entry Bookkeeping
Permanent Accounts Journal Entry
Credit CPA
Invoice Equation
Cash Exchange
43
Chapter Six
Analyzing and Classifying Transactions
Part one: Introduction Transactions

1. Introduction
Preparing a new equation, A=L + C after each transaction would be cumbersome and costly
especially when there are a great many transactions in an accounting period. Also, information for a
specific item such as cash would be lost as successive transactions were recorded. This information
could be obtained by going back and summarizing the transactions, but that would be very time-
consuming. A much more efficient way is to classify the transactions according to items on the
balance sheet and income statement. The increases and decreases are then recorded according to
type of item by means of a summary called an account.
2. The Account
A separate account is maintained for each item that appears on the balance sheet (assets, liabilities,
and capital) and on the income statement (revenue and expense). Thus an account may be defined
as a record of the increases, decreases, and balances in an individual item of asset, liability,
capital, revenue, or expense.
The simplest form of the account is known as the “T” account because it resembles the letter “T”.
The account has three parts: 1) the name of the account and the account number, 2) the debit side
(left side), and (3) the credit side (right side). The increases are entered on one side, the decreases
on the other. Which change goes on which side will be discussed in section 3 the balance (the
excess of the total of one side over the total of the other) is inserted near the last figure on the side
with the larger amount.
3. Debits and Credits: The Double-Entry System
When an amount is entered on the left side of an account, it is a debit and the account is said to be
debited. When an amount is entered on the right side, it is a credit and the account is said to be
credited. The abbreviations for debit and credit are Dr. and Cr., respectively. Whether an increase
in a given item is credited or debited depends on the category of the item. By convention asset and
expense increase are recorded as debits, whereas liability, capital, and income increases are
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recorded as credits. Asset and expense decreases are recorded as credits, whereas liability, capital,
and income decreases are recorded as debits. The following tables summarize the rule.
Assets and Expenses Liabilities Capital, and Income
Dr+ Cr- Dr- Cr+
(Increases) (Decreases) (Decreases) (Increases)
4. The Ledger
The complete set of accounts for a business entity called a Ledger. It is the “reference book” of the
accounting system and is used to classify and summarize transactions and to prepare data for
financial statements. It is also a valuable source of information for managerial purposes, giving, for
example, the amount of sales for the period or the cash balance at the end of the period. Depending
on what method of data processing is used, the ledger may take the form of a bound book with a
page for each account, punched cards, or magnetic tapes or disks. In any case, the accounting
principles are the same.
5. The Chart of Accounts
It is desirable to establish a systematic method of identifying and locating each account in the
ledger. The Chart of Accounts, sometimes called the code of accounts, is a listing of the accounts
by title and numerical designation. In some companies the chart of accounts may run to hundreds of
items. In designing a numbering structure for the accounts, it is important to provide adequate
flexibility to permit expansion without having to revise the basic system. Generally, block of
numbers is assigned to various groups of accounts, such as assets, liabilities, etc. there are various
systems of coding, depending on the needs and desires of the company. A simple chart structure is
to have the first digit represent the major group in which the account is located.
Account Group Two-Digit Three-Digit

1. Assets 11-19 101-199
2.Liabilities 21-29 201-299
3.Capital 31-39 301-399
4.Income 41-49 401-499
5.Expense 51-59 501-599
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6. The Trial Balance
As every transaction results in an equal amount of debits and credits in the ledger, the total of all
debit entries in the ledger ought to equal the total of all credit entries. At the end of the accounting
period we check this equality by preparing a two-column schedule called a trial balance, which
compares the total of all debit balances with the total of all credit balances. The procedure is as
follows:
1. List account titles in numerical order in two columns of a work sheet.
2. Record balance of each account, entering debit balance in the left column and credit balances in
the right column.
Note: Asset and expense accounts are debited for increases and would normally have debit
balances. Liabilities, capital, and income accounts are credited for increases and would normally
have credit balances.
3. Add the columns and record the totals
4. Compare the totals.
Note: If the totals agree, the trial balance is in balance, indicating the equality of the debits and
credits for the hundreds or thousands of transactions entered in the ledger. Although the trial
balance provides arithmetic proof of the accuracy of the records, it does not provide theoretical
proof. In addition to providing proof of arithmetic accuracy in accounting, the trial balance
facilitates the preparation of the periodic financial statements. Generally, the trial balance
comprises the first two columns of a work sheet, from which financial statements are prepared.
Part Two: Recording Transaction
1. Introduction
In the preceding chapters we discussed the nature of business transaction and the manner in which
they are analyzed and classified. The primary emphasis was the why rather than the how of
accounting operations; we aimed at an understanding of the reason for making the entry in a
particular way. We showed the effects of transactions by making entries in T accounts. However,
these entries do not provide the necessary data for a particular transaction, nor do they provide a
chronological record of transactions. The missing information is furnished by the journal.
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2. The Journal
The journal, or day book, is the book of original entry for accounting data. Subsequently, the data
is transferred or posted to the ledger, the book of subsequent or secondary entry. The various
transactions are evidenced by sales tickets, purchase invoices, check stubs, etc. on the basis of this
evidence the transactions are entered in chronological order in the journal. The process is called
journalizing.
There are a number of different journals that may be used in a business. For our purposes they may
be grouped into (1) general journals and (2) specialized journals. The latter type, which are used in
businesses with a larger number of repetitive transactions, are described in the next chapter. To
illustrate journalizing, we have used the general journal, whose standard form is shown below.
Date Description P.R Debit Credit

(1) (2) (3) (4) (5)
20xx Cash 11 1,000
Oct.7 Capital 31 1,000
(6) Invested cash in the business
3. Journalizing
We describe the entries in the general journal according to the numbering above.
(1) Date. The year, month, and day of the entry are written in the date column. The year and
month do not have to be repeated for additional entries until a new month occurs or a new
page is needed.
(2) Description. The account title to be debited is entered on the first line, next to the date
column. The name of the account to be credited is entered on the line below and indented.
(3) P.R. (Posting Reference). Nothing is entered in his column until the particular entry is
posted, that is, until the amounts are transferred to the related ledger accounts. The posting
(4) Debit. The debit amount for each account is entered in this column. Generally there is only
one item. But there could be two or more separate items.
(5) Credit. The credit amount for each account is entered in this column. Here again there is
generally only one account, but there could be two or more accounts involved with different
amounts.
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(6) Explanation. A brief description of the transaction is usually made on the line below the
credit. Generally, a blank line is left between the explanation and the next entry.
4. Posting
The process of transferring information from the journal to the ledger for the purpose of
summarizing is called posting. Primarily a clerical task, posting is ordinarily carried out in the
following steps:
1. Record the amount and date. The date and the amounts of the debits and credits are
entered in the appropriate accounts.
2. Record the posting reference in the account. The number of the journal page is entered in
the account (dashed line below).
3. Record the posting in the journal. For cross-referencing, the code number of the account
is now entered in the P.R. column of the journal (solid line).
E. Advantages of Special Journals
The advantages of using special journals where there are numerous repetitive transactions may be
summarized as follows:
a) Reduces detailed recording; in the special journal, each transaction is entered on a single line
designed to provide all necessary information.
b) Permits better division of labor; each special journal can be handled by a different person,
who will become more familiar with the special work and therefore more efficient. Just as
important, journalizing can be done by a number of people working simultaneously, rather than
consecutively.
c) Permits better internal control; having separate journals allows the work to be arranged in
such a way that no one personal has conflicting responsibilities.
6. Special Ledgers (Subsidiary Ledgers);
Further simplification of the general ledger is brought about by the use of subsidiary ledgers. In
particular, for those businesses those sells goods on credit and find it necessary to maintain a
separate account for each customer and each creditor, a special accounts receivable ledger and an
accounts payable ledger eliminate multiple entries in the general ledger.
The advantages of special or subsidiary ledgers are similar to those of special journals. These are;
Reduces ledger detail; most of the information will be in the subsidiary ledger, and the general
ledger will be reserved chiefly for summary or total figures. Therefore, it will be easier to prepare
the financial statements.
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Permits better division of labor; here again, each special or subsidiary ledger may be handle by a
different person. Therefore, one person may work on the general ledger accounts, while another
person may work simultaneously on the subsidiary ledger.
Permits a different sequence of accounts; in the general ledger, it is desirable to have the
accounts in the same sequence as in the balance sheet and income statement.
Permits better internal control; better control is maintained if a person other than the person
responsible for the general ledger is responsible for the subsidiary ledger.
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……1. Accounts are records of increases and decreases in individual financial statement items.
……2. A chart of accounts is a listing of accounts that make up the journal.
……3. The chart of accounts should be the same for each business.
……4. Accounts payable are accounts that you expect will be paid to you.
……5. Consuming goods and services in the process of generating revenues results in expenses.
……6. Prepaid expenses are an example of an expense.
……7. Unearned Revenues account is an example of a liability.
……8. The Drawings account is an example of an expense.
……9. Accounts in the ledger are usually maintained in alphabetical order.
1. Which of the following statements is incorrect?

a) purchase invoice = debit payables and credit something else
b) sales invoice = debit receivables and credit something else
c) cash payment = credit cash and debit something else
d) cash receipt = debit cash and credit something else
2. A company sells goods on credit for £5,000. Which of the following entries correctly records the
transaction?
a) credit trade payables and debit sales £5,000
b) debit trade receivables and credit sales £5,000
c) credit inventories and debit trade receivables £5,000
d) debit cash and credit sales £5,000
3. The following are transactions for July 2010:

Trade receivables at 1 July 2010 £50,000
Sales £732,000
Receipts from customers £723,000
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Credit notes £2,000

What are the trade receivables at 31 July 2010?
a) £39,000 b) £41,000 c) £61,000 d) £57,000
4. The following are transactions for June 2010.

Trade payables at 1 June 2010 £18,000
Purchases £380,000
Trade payables at 30 June 2010 £17,000
Credit notes £2,000
How much was paid to suppliers in June 2010?
a) £415,000 b) £379,000 c) £381,000 d) £345,000
5. A company had a bank balance of £10,000 on 1 August 2010. During August total payments
were £128,000 and total receipts were £119,000. Bank charges of £3,000 had not yet appeared on
the bank statement. What is the cash book balance or overdrawn at 31 August 2010?
a) £1,000 balance b) £1,000 overdrawn c) £2,000 overdrawn d) £2,000 balance
6. The following is the trial balance at 31 December 2009 of a company following its first year of
trading which commenced 1 January 2009:
Debit Credit
£000 £000
Share capital 100
Cash and cash equivalents 24
Non-current assets 70
Expenses 10
Trade payables 24
Inventories 6
Sales revenue 36
Trade receivables 32
Cost of sales 18
160 160
What is the profit or loss for the year 2009?

a) £8,000 profit b) £18,000 loss c) £8,000 loss d) £18,000 profit
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Debit Credit
£000 £000
Share capital 100
Expenses 10
Trade payables 24
Inventories 6
Sales revenue 36
Cost of sales 18
160 160
What are the total assets as at 31 December 2009?

a) £62,000 b) £126,000 c) £108,000 d) £132,000
Debit Credit
£000 £000
Share capital 100
Expenses 10
Trade payables 24
Inventories 6
Sales revenue 36
Cost of sales 18
160 160
What is the total shareholders’ equity as at 31 December 2009?

a) £76,000 b) £32,000 c) £108,000 d) £100,000
9. The balance on the telephone account in the profit and loss account for the 12 months to 31
December 2009 is £270,000 (total charges up to 30 September 2009). An accrual is required for
last quarter of the year assuming that charges continue at the same level throughout 2009.What is
the balance on the telephone accrual account at 31 December 2009?
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a) £90,000 debit b) £135,000 credit c) £135,000 debit d) £90,000 credit
10. The amount of the rent paid and shown in the profit and loss account for the period January
2009 to January 2010 was £312,000. A prepayment is required in respect of January 2010,
assuming that rent payable charges are evenly spread over 2009 and 2010.What is the rent payable
charge for 2009?
a) £288,000 b) £264,000 c) £432,000 d) £336,000
C. Oral Questions
1. What is a trial balance?
2. What is a special ledger?
3. What is a double-entry system?
A business transaction is an activity or event that can be measured in terms of money and which
affects the financial position or operations of the business entity. In other words, it has an effect on
any of the accounting elements – assets, liabilities, capital, income, and expense. Transactions may
be classified as exchange and non-exchange. Exchange transactions involve physical exchange
such as purchasing, selling, collection of receivables, and payment of accounts. Non-exchange
transactions are events that do not involve physical exchanges but where changes in monetary
values are determinable, e.g. wear and tear of equipment, fire loss, typhoon loss, etc. The separate
entity concept or accounting entity assumption clearly establishes a distinction between
transactions of the business and those of its owner/s. If Mr. Bright, owner of Bright Productions,
buys a car for personal use using his own money, it will not be reflected in the books of the
company. Why? Because it does not have anything to do with the business. Now if the company
purchases a delivery truck, then that would be a business transaction of the company. If Mr. Grim
invests $20,000 into the company, would that be recorded in the books of the business? Ask this:
Does it have anything to do with the company? Yes. Then, that would be a recordable business
transaction. In any case, always remember that a business is treated as an individual entity, separate
and distinct from its owners. Transactions must involve monetary values, meaning a certain amount
of money must be assigned to the elements or accounts affected. For example, Bright Productions
renders video coverage services and expects to collect $10,000 after 10 days. In this case, it's
explicit. The income and receivable can be measured reliably at the $10,000. Fire, typhoon and
other losses may be estimated and assigned with monetary values. The mere request (order) of a
customer is not a recordable business transaction. There should be an actual sale or performance of
service first to give the company a right over the income or revenue. Every transaction has a dual or
two-fold effect. For every value received, there is a value given; or for every debit, there is a credit.
This is the concept of double-entry accounting. For example, Bright Productions purchased tables
and chairs for $6,000. The company received tables and chairs thereby increasing its assets
(increase in Office Equipment). In return, the company paid cash; thus, there is an equal decrease in
assets (decrease in Cash). As part of good accounting and internal control practice, business
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transactions must be supported by source documents. The source documents serve as bases in
recording transactions in the journal. Examples of source documents are: Official Receipt issued
whenever cash is received, Sales Invoice for sales transactions, Cash Voucher for payment in cash,
Statement of Account from suppliers, Vendor's Invoice, Promissory Notes, and other business
documents. The first step in the accounting process is actually to prepare the source document and
determine the effects of the business transaction to the accounts of the company. After which, the
accountant records the transaction through a journal entry.
Subsequent or Secondary Entry Specialized Journals
Posting Reference Explanation
Detailed Recording Subsidiary Ledgers
Division of Labor Sequence of Accounts
Internal Control T Account
Items Income
Abbreviations Reference Book
Chart (Code) of Accounts Equality
Arithmetic Accuracy Financial Statement
Proof Transaction
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Chapter Seven
Income Statement
Introduction
As a manager, you may be asked to produce or contribute towards an income statement for your
own business unit. This provides senior management with an indication of how your business unit
is performing against its targets over a specific period. The purpose of an income statement is to be
able to measure an organization’s financial performance over a specific accounting period. It
provides a summary of how its revenues and expenses are incurred, as well as showing if it has
made a net profit or loss.
The income statement is divided into two parts:

Operating items section; provides information about revenues and expenses that are a direct result
of regular organization operations.
Non-operating items section; details any revenue and expense information about activities that are
not tied directly to these operations.
Nature of Income Statement

The income statement may be defined as a summary of the revenue, expenses, and net income or
net loss of a business entity for a specific period of time. This may also be called a profit and loss
statement, operating statement, or statement of operations. Let us review the meaning of the
elements entering into the income statement.
Revenue: The increase in capital resulting from the delivery of goods or rendering of services by
the business. In amount, the revenue is equal to the cash and receivables gained in compensation
for the goods delivered or services rendered.
Expenses: The decrease in capital caused by the business’s revenue-producing operations. In

amount, the expense is equal to the value of goods and services used up or consumed in obtaining
revenue.
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Net Income: The increase in capital resulting from profitable operation of a business; it is the
excess of revenues over expenses for the accounting period.
Net Loss: The decrease in capital resulting from the operations of a business. It is the excess of
expenses over revenue for the accounting period.
Note: It is important to note that a cash receipt qualifies as revenue only if it serves to increase
capital. Similarly, a cash payment in an expense if only it decreases capital. Thus, for instance,
borrowing cash from a bank does not contribute to revenue.
Purpose of the Income Statement

The primary purpose of the income statement is to report an organization’s earnings to investors
over a specific period of time. It provides important insights into how effectively management is
controlling expenses, the amount of interest on income and expense, and the taxes paid. An income
statement can also be used to calculate financial ratios that will reveal how well the management
is investing the money under their control. It can also be used to compare an organization’s profits
with those of its competitors by examining various profit margins.
Income statements are used in a variety of ways both internally and externally to aid the decision-
making process.
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Income Statement Concepts
Alternative titles for the income statement include earnings statement, statement of operations, and
profit and loss statement. The income statement is used to summarize the operating results of a
business by matching the revenues earned during a given period of time with the expenses incurred
in generating those revenues. Bear in mind, however, that this measurement of net income is not
absolutely accurate or precise due to the assumptions and estimates in the accounting process, an
income statement has certain limitations. Also, the income statement includes only those events
that have been evidenced by actual business transactions. A good “customer base” is certainly an
important step towards profitable operations; however, the development of a customer base is not
reflected in the income statement because its value cannot be measured objectively until actual
transactions take place. Despite these limitations, the income statement is of vital importance to the
users of a company’s financial statements.
Income statement Formats
There are a variety of different types of income statement that organizations use, but the most
common are: 1) Single-step format 2) Multi-Step format
The following sections take you through how each of these formats is produced and what is
included in each one.
The Single-Step Format
This format for the income statement uses only one subtraction to arrive at net income. Taking away the sum
of expenses and losses form the sum of revenues and gains gives a figure for net income.
Revenue+ Expenses+ Net Income

- =
Gains Losses
Multiple-Step income statement

An alternative to the single-step income statement is the multiple-step income statement. This
format explicitly segregates the operating revenue and operating expenses from the non-operating
revenues. Non-operating expenses, gains and, losses. It also shows the gross profit (net sales minus
the cost of goods sold).
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Using Income Statement Effectively

The best way to use an income statement is to compare one with earlier ones for a similar period.
You can also compare them to the expectation set out by the organization in their long-term plan.
This is often discussed in the chair’s or CEO’s section of an annual report. They are also very
useful for comparing your organization’s performance with that of its main competitors. It is by
comparison against some benchmark that the income statement has its greatest value, something
that cannot be done when you look at a single income statement in isolation.
Income Statements can be

used to:
Compare against Compare against
competitors Competitors
Income statements in Comparative formats

You may have seen income statements presented in several comparative formats when they are
used internally. These formats present two or more years of data side by side to make it easy to
compare the figures. The most common formats for comparison are: 1) annual figures 2) Annual
figures with percentage change 3) Annual percentage
When you are making such comparisons within your organization you will normally use actual
dollar amounts. This format makes it easy to see any increases or decreases in sales, expenses,
profits, and any of the detailed amounts when making decisions.
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……1. An income statement is also called a profit and loss statement.
……2. An income statement includes taxes the business must pay on its earnings.
……3. Return on investment is net profit divided by start-up investment.
……4. Financial ratio analysis is sometimes called same-size analysis.
……5. Operating ratio is COGS divided by sales.
……6. To calculate profit margin, divide sales into net income.
……7. An income statement shows whether the difference between revenue and net profit is a
profit or a loss
……8. Never disclose your COGS, so you can keep your operating ratio secret.
1. The income statement shows whether the difference between sales and costs is:
a) a profit or loss. b) greater or smaller. c) a net profit or a gross profit.
2. In the income statement, which costs are subtracted from gross profit to get pre-tax profit?
a) other variable costs b) fixed operating costs c) cost of goods sold
3. Analyzing income statement items as a percentage of sales makes clear:

a) how sales are affecting costs.
b) how costs are affecting sales.
c) how costs are affecting net profit.
4. The ratio net income divided by sales is called:

a) net sales. b) return on sales. c) operating ratio.
5. Which operating-efficiency ratio measures the average number of days that sales are going
uncollected?
a) receivable turnover ratio b) collection-period ratio c) inventory turnover ratio
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C. Oral Questions
1. What is an income statement?
2. Describe three uses of financial ratio analysis.
3. What are the formats of income statement?

An income statement (US English) or profit and loss account (UK English) (also referred to as a
profit and loss statement (P&L), revenue statement, statement of financial performance, earnings
statement, operating statement, or statement of operations) is one of the financial statements of a
company and shows the company’s revenues and expenses during a particular period. It indicates
how the revenues (money received from the sale of products and services before expenses are taken
out, also known as the “top line”) are 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. The
purpose of the income statement is to show managers and investors whether the company made or
lost money during the period being reported. One important thing to remember about an income
statement is that it represents a period of time like the cash flow statement. 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. 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.
Income Statement Operating Items
Non-Operating Items Net Income
Net Loss Investor
Single-Step Format Multi-Step Format
Gain Annual Percentage
Annual Figures CEO
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Business Unit Financial Performance

Assumptions Estimates
Limitations Customer Base
Segregate Level of Income
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Chapter Eight
Balance Sheet
Introduction
The balance sheet reports as of a given point in time the resources of a business (assets), its
obligations (liabilities), and the residual ownership claims against its resources (owners’ equity).
By analyzing the relationships among these items, investors, creditors, and others can assess a
firm’s liquidity, i.e. its ability to meet short-term obligations, and solvency, i.e., its ability to pay
all current and long-term debts as they come due. The balance sheet also shows the composition of
assets and liabilities, the relative proportions of debt and equity financing, and how much of a
firm’s earnings have been retained in the business.
Balance sheets, especially when compared over time and with additional data, provide a great deal
of useful information to those interested in analyzing the financial well-being of a company. Of
special interest to both creditors and investors in analyzing the balance sheet is the company’s
financial flexibility.
Concepts of Balance Sheet

Balance Sheet in case of a non-trading concern is prepared in the usual way and contains
particulars of all assets and liabilities of the concern/ institution on the date on which it is prepared.
The excess of assets over liabilities is termed as Capital Fund or General Fund. The Capital Fund is
made up of excess of income over expenditure and other income or surpluses which might have
been capitalized by the institution from time to time. Sometimes two Balance Sheets may have to
be prepared; 1) Balance Sheet in the beginning of the accounting year to ascertain the amount of
Capital Fund in the beginning of the accounting year, and 2) Balance Sheet at the end of the
accounting year to show the financial position of the institution as on that date.
Elements of the Balance Sheet

The balance sheet is one of the main financial reports prepared by company accountants. It offers one of the
best overall views of your business's financial situation. The three major elements of the balance sheet are
assets, liabilities and owners' equity. The statement shows assets on the left and liabilities and equity on the
right and it follows the basic equation "assets equal liabilities plus owners' equity."
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Assets
Assets are the resources that a business uses to operate its business such as cash, inventories, land
and buildings, and equipment. Essentially, assets are any items of value owned or controlled by the
business that contributes towards generating revenue. Assets are categorized as either current or
non-current assets.
 Current assets:
are items of value that are expected to be consumed or converted into cash within the next
12 months. Examples include cash, inventory that is turning over regularly and accounts
receivable.
 Non-current assets:
are not expected to be consumed or converted into cash within the next 12 months.
Examples include assets that the business would generally keep for more than one year such
as plant and equipment, cars and buildings.
Liabilities
Liabilities are the financial obligations or debts of the business and include claims that creditors
have on the business’s resources such as accounts payable, bank overdrafts, provision for
employees’ annual leave and long service leave, tax liabilities, and loans payable. Essentially,
liabilities are amounts owed by the business to external parties. Liabilities are categorized as either
current or non-current liabilities.
 Current liabilities:
are expected to be paid within the next 12 months and include creditors, (accounts payable),
inventory purchases, overdraft, short-term loans and credit card debts.
 Non-current liabilities:
are not expected to be settled within the next 12 months and include mortgages on buildings
and equipment, and long term loans.
Owner’s equity
Owners’ equity is the residual interest in the assets of a business after liabilities are deducted. It is
the net worth of a business and equals the difference between assets and liabilities. Equity
represents the amount belonging to the owner once all financial obligations have been met. Equity
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includes the initial and ongoing capital investments made by the owners, retained earnings (or
accumulated losses), and reserves. Capital is any cash or assets the owner has contributed to the
business. Retained earnings are any profits that are reinvested in the business. Reserves are profits
set aside for particular purposes such as asset replacement, or major building maintenance. Owner’s
equity is also referred to as proprietorship, member’s funds, capital, or shareholders’ equity.
Forms of the Balance Sheet
The form of the balance sheet presentation varies in practice. Its form may be influenced by the
nature and size of the business, by the character of the business properties, by requirements set by
regulatory bodies, or by display preferences in presenting key relationships. The balance sheet is
prepared in one of two basic forms: (1) the account form, with assets being reported on the left-
hand side and liabilities and owners’ equity on the right-hand side, or (2) the report form, with
assets, liabilities, and owners’ equity sections appearing in vertical arrangement.
Balance Sheet Changes
At the moment an entity begins, its financial status can be recorded on a balance sheet. From that
time on, events occur that change the numbers on this first balance sheet, and the accountant
records these transactions in accordance with the concepts given earlier. Each balance sheet shows
the financial condition of the entity as of the date it was prepared, after giving effect to all of these
changes. Although in practice a balance sheet is prepared only at prescribed intervals, in learning
the accounting process it is useful to consider the changes one by one. This makes it possible to
study the effect of individual events without getting entangled with the mechanisms used to record
these transactions.
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……1. The financial statement that shows the results of a firm's operations over a specific time
period is called the balance sheet.
……2. Net income is the result of the balance sheet reporting revenues that are larger than
operating expenses.
……3. For the manager, every competitive method must be valued by the balance sheet it
produces.
……4. If the balance sheet and income statement are nonarticulated, they are linked together
mathematically without any loose ends.
……5. There are only a few examples of accounting standards that emphasize the effects of
transactions on the income statement to the exclusion of their impact on the balance sheet.
1. A balance sheet does not:

a) Report the assets and claims of an enterprise at a specified moment in time.
b) Have two counterbalancing sections.
c) Show the financial status of an enterprise.
d) Present revenues and expenses of an enterprise.
e) None of the above
2. The balance sheet shows:

a) the cash flow of the business
b) the financial position of the business
c) the financial performance of the business
d) the financial performance and the financial position of the business
3. The owners' equity section of a balance sheet contains two major components:
a) Common Stock and Additional Paid-in Capital
b) Paid-in Capital and Retained Earnings
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c) Common Stock and Retained Earnings

d) Net Income and Dividends
e) Additional Paid-in Capital and Net Income
4. The balance sheet is sometimes referred to as the:

a) Statement of Financial Position. b) Statement of Assets and Liabilities.
c) Statement of Changes in Financial Position. d) Statement of Current Affairs
e) none of the above
5. The time frame associated with a balance sheet is:

a) a point in time in the past. b) a one-year past period of time.
c) a single date in the future. d) a function of the information included in it.
e) a two-year comparative period of time.

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, a corporation or other business
organization, such as an LLC or an LLP. 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". Of the three 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. 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. Another way to look at the balance sheet equation is that
total 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
or shareholders' 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 cannot, 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.
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Liquidity Solvency
Long-term Debts Firm's Earnings
Capital Fund Expenditure
Financial Position Current Assets
Non-Current Assets External Parties
Loans Payable Bank Overdraft
Financial Obligations Retained Earnings
Proprietorship Shareholders
Prescribed Intervals Vertical Arrangement
Business Properties Financial Situation
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Chapter Nine
Cash Flow Statement
Introduction
Cash flow is the life blood of a business which plays a vital role in an economic life. The word
‘fund’ is used in a narrower sense refers to ’cash’. When cash is used as ‘fund’ the analysis relates
to movement of cash. Cash flows refer to the actual movement of cash into and out of an
organization. In other words, the movement of cash inclusive of inflow of cash and outflow of cash.
When the cash flows into the organization, it represents ‘Inflow of Cash.’ Similarly, when the cash
flows out of the business concern, it called as “Cash Outflow.”
In order to ensure cash flows are adequate to meet current liabilities such as tax payments, wages,
amounts due to trade creditors, it is essential to prepare a statement of changes in the financial
position of a firm on cash basis is called as “Cash Flow Statement.” This statement depicting
movement of cash position from one period to another.
Uses of Cash Flow Statement

Cash Flow Statement is a useful tool to the management for taking important financial decision
making. The following are the uses of this statement:
This Statement is the most useful to the management to prepare dividend and retention policies.
(2) It guides the management to evaluate the changes in cash position.
(3) It presents in brief to the management about the performance of operational, financial and
investment activities for effective decision.
(4) It helps to know how the movement of cash took place and the factors. which caused the
changes in cash flows.
(5) It guides the management in order to take decisions about short-term obligations.
(6) It also presents the details about the sources of cash and applications of cash during the
particular period.
Difference between Fund Flow Statement and Cash Flow Statement
Fund Flow Statement and Cash Flow Statement are the two useful tools of financial analysis and
interpretations of financial statements. But at the same time both the statements differ from each
other in the following manner:
(1) Fund Flow Statement helps to measure the causes of changes in working capital whereas cash
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flow statement focuses on the causes for the movement of cash during a particular period.
(2) Fund flow statement is prepared on the basis of Fund or all financial resources while cash flow
statement is based on cash basis of accounting.
(3) Cash Flow Statement guides to the management for short-term financial planning while Fund
flow analysis helps to the management for intermediate and long-term financial planning.
(4) Statement of changes in working capital is required for the preparation of Fund flow statement
while for cash flow statement no such statement is required.
Limitations of Cash Flow Statement

(1) Cash Flow Statement has limited scope as it compares with Fund flow statement. Because it
discloses inflows and outflows of cash alone. It does not reveal the overall financial position of
the concern.
(2) Cash Flow Statement cannot provide a comprehensive picture of a financial position because
non-cash items of expenses and incomes are excluded.
(3) The balances as disclosed by the cash flow statement may not be treated as actual liquid
position of a concern since it cannot be easily influenced by postponing purchases and other
payments.
Preparation of Cash Flow Statement

Cash Flow Statement is prepared like Fund Flow Statement. Preparation of this statement is based
on the movement of cash, may be an actual inflow of cash or outflow of cash, Profit and Loss
Account and other relevant information’s. While preparing a cash flow statement, it starts with an
opening balance of cash in hand and cash at bank, all the sources of cash are added to an opening
balance minus applications of cash is reconciled with the closing balance of cash. The balance
represents cash and bank balances at the end of accounting period.
Sources and Applications of Cash

1-Sources of Cash (Inflow of Cash)
The following are the main sources of cash such as:

(1) Cash from Operations or Trading Profit. (2) Sale of Fixed Assets for Cash.
(3) Sale of Investments for Cash. (4) Issue of Shares and Debentures for Cash.
(5) Raising Long-Term Loans from Banks and Financial Institutions.
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2-Application of Cash (Outflow of Cash)

Application of cash can be involved in the following forms:
(1) Cash Lost in Operations or Trading Losses. (2) Redemption of Shares and Debentures by Cash.
(3) Purchase of Fixed Assets. (4) Repayment of Long-Term Loans.
Computation of Cash Flow Statement
A comprehensive Cash Flow Statement is ascertained in two stages:

(1) Cash from Operations, i.e., internal sources of cash calculated by preparing combined
statements of adjusted profit and loss account.
(2) External Sources and Applications of Cash, i.e., Flow of Cash involves in non-current items
ascertained by the Statement of Sources and Applications of Cash.
Diagram of Sources and Applications of Cash
The summary of sources and applications of cash is presented in the chart given below
Sources of Cash Applications of Cash
(Inflow of Cash) (Outflow of Cash)
Cash from Operations Cash Lost in Operations
Sale of Fixed Assets Purchase of Fixed Assets
Sale of Investments Purchase of Investment
Issue of Shares Redemption of Preference Shares
Issue of Debentures Redemption of Debentures
Raising Long-Term Loans Decrease in any Liability
Increase in any Liabilities Decrease in any Assets
Decrease in any Assets
Cash from Operations

Cash from operations is the main source of inflow of cash. The Net Profit or Net Loss is the net
effect of business transactions shown by the profit and loss account. In order to find out the actual
movement of cash from trading operations, it is essential to ascertaining cash from operations. It
can be calculated under the following situations:
(a)When all Transactions are Cash Transactions
(b) When all Transactions are not Cash Transactions
(a)When all Transactions are Cash Transactions: It assumes that where all the expenses and
losses, incomes and gains are paid or received in cash during the particular period. The Net Profit
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or Net Loss shown by the profit and loss account is taken as the amount of cash from operations.
Thus, Net Profit or Net Loss is equal to cash from operations. When Net Profit made by a firm
represents Cash Inflow or Cash Profit from Operations. Similarly, the Net Loss shown by the profit
and loss account refers to Cash Outflow from Operations.
(b)When all Transactions are not Cash Transactions: In actual practice, in business transactions
are made either on cash basis or credit basis. For example, goods purchased or sold on cash as well
as on credit. Certain expenses are always outstanding and some of the incomes are not immediately
realized under such circumstances, the net profit made by a firm cannot generate equivalent amount
of cash. Therefore, the charging of non-fund or non-cash items such as outstanding expenses,
incomes received in advances, prepaid expenses and outstanding incomes etc. to profit and loss
account should be readjusted. In such circumstances the actual cash from operations can be
calculated by preparing adjusted profit and loss account.
Calculation of Cash from Operations

Cash from Operations can be calculated by either of the following methods:
(E) Cash from Operations calculated with the help of Adjusted Profit and Loss Account. Under
this method, all non-fund or non-operations items should be readjusted to cash profit from
operations. The specimen form of cash from operations is given below:
Cash from Operations

(Adjusted Profit and Loss Account)
Particulars. Rs Particulars Rs
To Depreciation on Fixed Assets By Balance B/D
To Transfer to General Reserve (Opening Balance of P & L A/C)
To Loss on Sale of Fixed Assets By Profit on Sale of Fixed Assets
To Increase in Outstanding Expenses By Profit on Sale of Investments
To Decrease in Prepaid Expenses By Decrease in Outstanding Expenses
To Preliminary Expenses written off By Increase in Prepaid Expenses
To Balance C/D By Cash from Operations
(Closing Balance of P & L A/C) (Balancing figure)
(B) Cash from Operations can also be calculated on the basis of current assets and current
liabilities. Under this method, the amount of changes in the various items of current assets and
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current liabilities other than cash and bank balances should be adjusted with the help of Adjusted
Profit and Loss Account. It may be noted that, as compared to above this method may increase or
decrease in items of creditors, stocks, debtors, bills receivable and bills payable are not adjusted
while calculating cash profit from operations and they may be directly taken as Sources (inflow) of
Cash or Application (outflow) of Cash. This method is generally adopted in practice.
While applying this method, the following general principles may be taken for measuring cash
from operations:
Increase in Current Assets Decrease in Cash

Decrease in Current Assets Increase in Cash
Increase in Current Liability Increase in Cash
Decrease in Current Liability Decrease in Cash
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……1. Examples of cash equivalents are treasury bills, money market funds, and commercial
paper.
……2. There are three types of cash flows included in the cash flow statement.
……3. Advance deposits from customers are investing cash flows.
……4. Cash inflows from investing activities would include cash sales of operational assets, cash
sales of long term investments in securities and collection of loan principal.
……5. Net proceeds of issuing debt or equity securities are financing cash flows.
……6. There are three approaches to preparing the operations section of a cash flow statement,
namely the direct method, the semi-direct method, and the indirect method.
……7. Settling debt by transferring non-cash assets is included in the cash flow statement.
……8. When preparing the cash flow statement using the indirect method, increases in current
assets are added to net income to determine cash flow from operations.
……9. When preparing the cash flow statement using the indirect method, increases in current
liabilities are added to net income to determine cash flow from operations.
……10. The income statement and the statement of cash flows are both change statements.
1. When using the indirect method to prepare the operating section of the cash flow statement
amortization is treated as an add adjustment to net income because amortization:
a) is a direct outflow of cash.
b) reduces net income but does not involve an outflow of cash.
c) reduces net income and involves an outflow of cash.
d) is an outflow of cash to a reserve account for replacement of assets.
2. In the preparation of a statement of cash flows, adjustments to net income to reconcile net
income to cash from operating activities would not include:
a) Gains on sale of land.
b) Difference between the purchase price and the resale price of treasury stock.
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c) Amortization of organization cost.

d) Amortization of debt discount.
3. Bob Ltd. Reported sales of $200,000 and an increase of $30,000 in accounts receivable in 2005.
Under the direct method, what would be Bob’s cash from customers in 2005?
a) $170,000 b) $200,000
c) $230,000 d) $260,000
4. Hardie Corporation sold a fully depreciated equipment for $1,000. This transaction will be
reported on the cash flow statement as:
a) an operating activity. b) an investing activity.
c) a financing activity. d) none of the above.
5. If during the accounting period sales revenue is $20,000 and accounts receivable increases by
$5,000, cash received from customers for the period:
a) is $25,000. b) is $20,000.
c) is $15,000. d) depends on the proportion of cash and credit sales.
6. Selected information from PoCo's Company's accounting records is as follows:

Cash paid to retire common shares $12,000
Proceeds from issuance of preferred shares $15,000
Cash dividends paid $5,000
Proceeds from sale of equipment $25,000
On its cash flow statement for the year, Central should report net cash flow from financing
activities as:
a) $2,000, net outflow of cash. b) $13,000, net outflow of cash.
c) $23,000, net outflow of cash. d) $25,000, net inflow of cash.
7. Based on the same information as in question 6, PoCo should report net cash flow from investing
activities as:
a) $2,000, net outflow of cash. b) $13,000, net outflow of cash.
c) $23,000, net outflow of cash. d) $25,000, net inflow of cash.
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8. Which of the following is not a primary objective of the cash flow statement?
a) To help users assess the overall performance of an enterprise.
b) To help users assess the ability of an enterprise to generate cash from internal sources.
c) To help users assess the liquidity and solvency of an enterprise.
d) To help users assess the ability of an organization to repay debt obligations and to reinvest or
make distributions to owners.
9. Which of the following is not an appropriate adjustment to reconcile net income with net cash
flow from operating activities (indirect method)?
a) An addition for patent amortization.
b) A deduction for bonds payable discount amortization.
c) An addition for a loss on sale of land.
d) An addition for depreciation expense.
10. A stock dividend declared in the period should be reported as which of the following?
a) A cash outflow from investing activities.
b) A cash outflow from financing activities.
c) A cash outflow from operating activities.
d) None of the above.
11. When using the indirect method, an increase in inventory should be reported in the cash flow
statement as:
a) an addition to net income in the computation of cash flows from operating activities.
b) a deduction from net income in the computation of cash flows from operating activities.
c) a financing activity.
d) an investing activity.
12. Which of the following is not an adjustment to net income to determine the net cash flow from
operating activities under the indirect method?
a) Increase in accounts receivable.
b) Increase in inventory.
c) Increase in long-term investment.
d) Increase in prepaid expenses.
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13. If sales revenue was $100,000, accounts receivable decreased by $4,000, and inventory
increased by $3,000, cash received from customers should be:
a) $98,000 b) $100,000 c) $104,000 d) $101,000
14. Selected information from the 2005 accounting records of Joyce's Auto Dealers is as follows:
Cost of furniture purchased for cash $8,000,
Proceeds from bank loan $100,000
Repayment of bank loan (includes interest of $4,000) $44,000
Proceeds from sale of equipment $5,000
Cash collected from customers $320,000
Purchase of stock of another corporation as an investment $20,000
Common stock issued for cash $200,000
On the 2005 statement of cash flows, Joyce should report net cash inflows from financing activities
of:
a) $260,000 b) $265,000 c) $60,000 d) $256,000
15. Using the information in question 14, Joyce should report net cash outflows from investing
activities of:
a) $27,000 b) $32,000 c) $28,000 d) $23,000
C. Oral Questions
1. What are capital expenditures?
2. What is the cash flow statement?
3. How a cash flow statement is prepared?

The cash flow statement was previously known as the flow of Cash statement. The cash flow
statement reflects a firm's liquidity. The balance sheet is a snapshot of a firm's financial resources
and obligations at a single point in time, and the income statement summarizes a firm's financial
transactions over an interval of time. These two financial statements reflect the accrual basis
accounting used by firms to match revenues with the expenses associated with generating those
revenues. The cash flow statement includes only inflows and outflows of cash and cash
equivalents; it excludes transactions that do not directly affect cash receipts and payments. These
non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a
few. The cash flow statement is a cash basis report on three types of financial activities: operating
activities, investing activities, and financing activities. Non-cash activities are usually reported in
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footnotes. The cash flow statement is intended to provide information on a firm's liquidity and
solvency and its ability to change cash flows in future circumstances provide additional information
for evaluating changes in assets, liabilities and equity improve the comparability of different firms'
operating performance by eliminating the effects of different accounting methods indicate the
amount, timing and probability of future cash flows. The cash flow statement has been adopted as a
standard financial statement because it eliminates allocations, which might be derived from
different accounting methods, such as various timeframes for depreciating fixed assets.
Cash Outflow Inflow of Cash
Short-Term Obligations Cash Flow Statement
Dividend Policy Retention Policy
Fund Flow Statement Postpone
Debenture Financial Institutions
Redemption Outstanding Income
Outstanding Expense Bills Receivable
Prepaid Expenses Specimen
Equivalent Amount Comprehensive Picture
Interpretation Reconcile
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Chapter Ten
Partnerships
Introduction
The uniform partnership act defines partnership as the association of two or more persons to carry
on as co-owners of a business for profit, whether or not the persons intend to form a partnership.
Because partnerships are so easy to form no formal contract is required this form of business has
the greatest potential for disputes and lawsuits. To prevent misunderstandings among partners,
having a formal partnership agreement, preferably drafted by a lawyer, is advisable.
Accounting for Partnership

Accounting for business transactions with external parties is the same for a partnership as for
proprietorship. Assets, liabilities, revenues, and expenses are all recorded accounting to the
generally accepted accounting principles discussed in another chapter. It is the owners’ equity
section that differs. Partnership accounting requires that we establish a separate capital and a
separate withdrawal account for each partner. The manner in which we distribute the net income or
loss among the partners is unique for partnerships and differentiates a partnership from a
corporation.
Advantages and Disadvantages of the partnership

The partnership form of organization offers certain advantages over operating as a proprietorship,
or as a corporation. It also has a number of disadvantages. We will discuss each briefly.
Advantages
Capitalization: the amount of money invested by the owners of the business is called its
capitalization. The more owners, the more capital. This is one of the main reasons to have a
partner-for his or her money, to help finance business activities.
Talent: the more partners you have, the more talent you have. Of course, that also means more
people will share the profits. The advantage of having more talent is that you can utilize the unique
skills and abilities of several people. Each partner can specialize in an area of the business that can
best use his or her talents.
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Ease of formation: it’s easy to form a partnership. You and the other partners just say you are a
partnership and you are. That’s not the case if you want to operate as a corporation. You must go
through a formal legal process to be incorporated.
Cost of organization: the only cost in becoming a partnership is the legal fee to have the articles of
partnership drawn up. If the partners choose not to do this, then there are no costs at all. Becoming
a corporation requires cash outlays for the application to the state in which you wish to be
incorporated plus legal fees to file the application and preparation of the corporate charter and
bylaws.
Tax advantages: a partnership is not a legal entity, which means it doesn’t have to pay income
taxes. Each partner pays income taxes on personal income, including his or her share of the
partnership income.
Informality: corporations require formal legal procedures to do many of the things you can do as a
partnership without such rigidity.
Less government supervision: generally, partnerships have much less government supervision
than corporations.
Disadvantages
Loss of freedom: you can’t run a partnership as you would a proprietorship. As a sole owner of a
business you answer to no one. But with a partnership you must answer to your partners, and they
to you. You have mutual agency and unlimited liability. This requires mutual agreement on the
affairs of the partnership.
Limited life: if one partner dies or withdraws or a new partner is admitted, the partnership is
dissolved. That does not mean that the business is over. Partners usually provide for this situation
in the articles of partnership.
Unlimited liability: partnerships are not legal entities, so each partner is legally responsible for the
other partners’ actions. As you now know, once the partnership assets are used to settle creditors’
claims, your personal assets and the personal assets of your partners may be required to settle any
unsatisfied creditors’ claims. Corporations are legal entities and as a result are responsible for their
actions, but only to the extent of their capitalization.
Mutual agency: as we have seen, mutual agency means that any partner can bind the partnership to
any business contract he or she enters into that is within the apparent scope of the partnership’s
business activities. Thus, one partner’s bad judgment can cost all of the other partner large losses,
even if the partner was not authorized by the other partners to make the agreement.
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Capitalization: if you need large sums of money to operate your business, the partnership may not
be best form of organization. The corporate form of organization is a much better vehicle for
raising what you need. That’s because you can sell shares of stock to a large number of people who
are interested in a good investment for their money nut don’t want to become involved in the
operations of the business.
Tax disadvantages: depending on your income, you might pay more income taxes as a partnership
than if you organized as a corporation. Since this is subject to whatever tax laws and tax rates are
currently in effect, we can’t give any hard and fast rule. Each partnership has to look at its own
situation.
Co-Ownership of Property
When a partnership is formed, some partners may invest cash, some may invest office equipment or
other assets, some may simply invest their talents. But whatever assets are invested becomes the
property of all the partners. The partner contributing the asset no longer retains any personal right
to that asset. When a partnership is terminated, the individual partners may not receive back the
same assets they contributed. Of course, if it is agreeable to all the partners, the assets may be given
back to those who contributed them. But partners usually settle their claims against the partnership
by the distribution of cash.
Liquidation of a partnership
Partnership liquidation may be caused by the death of a partner, the imminent bankruptcy of the
partnership, or by mutual agreement among all partners. The attorney informed the three friends
that when a partnership is liquidated, the assets are sold (for cash), any outstanding debts and
liabilities are paid, and the remaining cash, if any, is distributed to the partners. Before the process
begins, however, the accounting cycle should be completed. That is, adjustments should be made,
financial statements prepared, and closing entries recorded and posted. At that point, only the
permanent accounts reported on the balance sheet should contain balances.
The four steps in the liquidation process follow.
1. Sell: all assets (except cash) must be sold for cash and the resulting gain or loss recognized.
2. Allocate: after all assets have been liquidated (that is, converted to cash), the gain or loss
calculated in step one must be allocated among the partners according to their fixed ratios.
3. Pay: the partnership’s cash is then used to pay all of the partnership’s liabilities.
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4. Distribute: any remaining cash can then be distributed to the partners according to their fixed
ratios.
Death of a partner
At the death of a partner the partner the partnership is automatically dissolved. What the account
must do is update the deceased partner’s capital account to the date of death. This requires the
following steps:
1. Closing the partnership books at the date of death, and allocating the income earned since the
end of the previous year between the capital accounts of the deceased and surviving partners.
2. Determining the current value of all the partnership assets at the date of death, and allocating
any appreciation (or depreciation) of these assets between the capital accounts of the deceased and
the surviving partners.
The remaining balance in the capital account for the deceased partner becomes a liability of the
partnership to the estate of the deceased partner. If the articles of partnership contain no provision
detailing how assets will be distributed to the estate, then the remaining partners and the estate will
have to agree on a method of distribution. Many partnerships carry life insurance on each partner,
to pay the estate if a partner dies. Entries for the distribution of assets to the estate are the same as
they are for the withdrawal of a partner.
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……1. A partnership is a business with two or more owners who make decisions for the business
together but generally don’t share the profits, losses, assets, and liabilities.
……2. An LLC combines the best features of partnerships and corporations, and can be an
excellent choice for small businesses with a limited number of owners.
……3. Nonprofit organizations are mission-driven and can be owned by an individual or partners.
……4. Assets contributed by partners to a partnership would normally be valued at carrying
amount in the previous business situation (e.g. sole proprietorship).
1. A ………… is an agreement between two or more parties that is enforceable by law.

a) contract b) corporation c) partnership
2. Which of the following characteristics of partnerships does not give rise to a potential
disadvantage of partnerships compared to companies?
a) Joint and unlimited liability. b) Mutual agency.
c) Ease of formation. d) Limited life.
3. In relation to the characteristics of partnerships, which of the following statements is incorrect?

a) Partners are jointly and individually liable for partnership debts.
b) Typically, partners are both owners and managers.
c) Any change in ownership dissolves the original (previously existing) partnership.
d)The partnership is a separate legal entity.
4. Which of the following statements about the Partnership Act and partnership profit or loss
distribution is correct?
a) Profits or losses are to be shared on the basis of capital contributions.
b) Partners are entitled to interest on capital contributed.
c) Partners are entitled to interest on advances.
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d) Partners are entitled to a salary for effort contributed.
C. Oral Questions
1. What is the difference between partnership and proprietorship?
2. What is a mutual agency?
3. List some of the advantages and disadvantages of partnership.

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance
their mutual interests. The partners in a partnership may be individuals, businesses, interest-based
organizations, schools, governments or combinations organizations may partner together to
increase the likelihood of each achieving their mission and to amplify their reach. In what is usually
called an alliance, governments may partner to achieve their national interests, sometimes against
allied governments holding contrary interests, as occurred during World War II and the Cold War.
In education, accrediting agencies increasingly evaluate schools by the level and quality of their
partnerships with other schools and a variety of other entities across societal sectors. Some
partnerships occur at personal levels, such as when two or more individuals agree to domicile
together, while other partnerships are not only personal, but private, known only to the involved
parties. Partnerships present the involved parties with special challenges that must be navigated
unto agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of
authority and succession, how success is evaluated and distributed, and often a variety of other
factors must all be negotiated. Once agreement is reached, the partnership is typically enforceable
by civil law, especially if well documented. Partners who wish to make their agreement
affirmatively explicit and enforceable typically draw up Articles of Partnership. It is common for
information about formally partnered entities to be made public, such as through a press release, a
newspaper ad, or public records laws. While partnerships stand to amplify mutual interests and
success, some are considered ethically problematic. When a politician, for example, partners with a
corporation to advance the latter's interest in exchange for some benefit, a conflict of interest
results; consequentially, the public good may suffer. While technically legal in some jurisdictions,
such practice is broadly viewed negatively or as corruption. Governmentally recognized
partnerships may enjoy special benefits in tax policies. Among developed countries, for example,
business partnerships are often favored over corporations in taxation policy, since dividend taxes
only occur on profits before they are distributed to the partners. However, depending on the
partnership structure and the jurisdiction in which it operates, owners of a partnership may be
exposed to greater personal liability than they would as shareholders of a corporation. In such
countries, partnerships are often regulated via anti-trust laws, so as to inhibit monopolistic practices
and foster free market competition. Enforcement of the laws, however, varies considerably.
Domestic partnerships recognized by governments typically enjoy tax benefits, as well.
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Partnership Co-owners
Formal Contract Capitalization
Talent Ease of Formation
Cost of Organization Tax Advantages
Informality Supervision
Loss of Freedom Limited Life
Mutual Agency Terminate
Liquidation Imminent
Bankruptcy Attorney
Allocate Withdrawal
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Chapter 11
Accounting for Corporations

Introduction
A corporation is an artificial legal being created by a government charter that endows it with
certain powers. A corporation exists in the eyes of the law as through it were a person separate and
distinct from the people who own it. It has many of the rights that a natural person possesses. It
may own property, borrow money, sue and be used, and in a sense it may even get “married” to
another corporation through a merger. Furthermore, many people own shares in corporations, either
directly or indirectly, through a mutual fund or pension program. Therefore, a corporation must
meet the requirement set forth by the state in which it is incorporated. A company may incorporate
in one state, have its main office in another state, and operate in many states.
Corporate Organization Structure
The organization structure of largest corporations follows the same basic pattern you will find
that this pattern is modified somewhat to fit the needs of specific organizations. But if you
understand this basic structure, you will have a good grasp of the various parts of the corporate
structure. Figure below shows the basic corporate organization structure and the function of group
in the structure.
Owners Stockholders
Policy makers
Board of directors
President
Operation and
managers
Vice President Vice Secretary- Controller

(Marketing) President treasure
(Marketing)
85
Stockholders
The stockholders are the owner of the corporation. Most state corporation laws give the
stockholders certain rights, which usually include the following:
1) The right to receive a certificate as evidence of ownership interest, and to transfer such shares as
they choose through either sale or gift.
2) The right to vote at stockholders’ meetings for the election of direction of directors and on other
matters as may be brought before the stockholders for action.
3) The right to purchase a portion of any new shares issued such that they will own the same
percentage of the total shares after the new issuance of stock as before.
Note: this preemptive right may be given up in some cases by a vote of the stockholders. One such
case may exist when a special stock purchase plan (stock option plan) is initiated to reward top-
level executives.
4) The right to receive dividends declared by the board the directors. This distribution of profits
usually takes the form of cash, but other assets may be distributed as well.
5) The right to receive assets upon dissolution of the corporation of the corporation if any remain
after the creditors have been paid.
Board of Directions
The board of directors, elected by the stockholders, is responsible for the management of the
corporation. The board usually delegates the power to make operating decisions and to run the day
to day activities of the business to professional management team. The board normally confines its
attention to 1) making policy, 2) reviewing management performance, and 3) acting on matters that
can legally be decided only by the board. Decisions to expand the business by introducing a new
product or by opening operations in a new geographic area are examples of major policy decisions.
Declaring that dividends will be paid to stockholders is an action that can be taken legally only by
the board.
President and other Operating Officers

The president, various vice presidents, the secretary- treasurer, and the controller are responsible
for carrying out the policies set by the board. They operate the corporation by supervising the
purchase (or manufacture) of the product, the by selling and distributing the product. They hire
employees, prepare budgets, arrange short-term borrowing, and attend to all the other details
necessary to run a business.
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Equity Accounting for the Corporation

Accounting for the corporation is distinguished from accounting for the sole proprietorship or the
partnership by the treatment of owners’ (stockholders’) equity, which, in the corporation, is
separated into paid-in capital and retained earnings. The reason for this separation is that most
states prohibit corporations from paying dividends from other than retained earnings. Paid-in
capital is further divided, and so we have two major capital accounts:
Capital stock, corporate capital stock is evidenced by stock certificates. There are a specified
number of shares of stock authorized by the state, generally at a specified par value. No-par stock
also can be issued in most states. When stock is issued at a price above par, the amount above par is
termed a premium. If stock is issued below par, the difference is termed a discount. If only one type
of stock is issued, it may be termed capital stock or, specifically, common stock. Capital stock that
has been issued, fully paid, and reacquired by the company, but not canceled, is called treasury
stock.
Retained earnings, retained earnings represent stockholders’ equity that has accumulated from
profitable operation of the business. Generally, they represent total net income less dividends
declared. Retained earnings result only from operations of the business, and no entries from
transactions in company stock are made to the account. The account is debited for dividends
declared and credited for net income for the period. At the end of the year, Expense and Income
Summary is debited and Retained Earning credited for net income.
Organization Costs
Organization costs, commonly called organization expense by accountants, include the general
costs of launching a business concern. This category consists of fees paid for legal services (such as
the drafting of the corporate charter and bylaws), fees paid for accounting services, costs of issuing
securities, printing, costs, etc. possibly because organization service are in the main invisible and
do not clearly attach to any tangible asset, businessmen and their accountants seem to be anxious to
get such costs written off as soon as possible. Actually, the cost of lunching an enterprise may well
deserve to be maintained as a significant asset for so long as the organization exists.
Treasury Stock
Although Corporations are never obligated to buy their own stock, some companies find it
desirable to do so. A corporation may repurchase its own stock 1) to signal to investors that the
company believes its stock is worth purchasing, 2) to obtain shares that can be reissued as payment
87
for purchases of other companies, 3) to obtain shares to reissue to employees as part of stock option
plans. When a corporation buys its own stock back from stockholders, the stock is called treasury
stock. While the corporation holds these shares, they do not offer voting, dividend, or other
stockholder rights.
Characteristics of Preferred Stock

The now we will focus on preferred stock. The authorization to issue preferred stock usually
specifies:
1) The par value or the stipulation that the stock is to be no-par
2) The total number of shares authorized
3) The annual dividend rate or amount
4) The other characteristics that the stock is to possess (dividend privileges, voting rights,
conversion privileges, callability, and liquidation preference)
88

……1. Corporate finance focuses on the interaction between firms and financial markets, and the
field of investments focuses on the interaction between investors and financial markets.
……2. Investors who believe the market is efficient will focus on designing well-diversified
portfolios instead of trying to identify underpriced assets.
……3. Generally speaking, the investment process includes 6 basic components.
……4. Capital markets have shifted from dominance by specialized institutional investors to
dominance by households.
…….5. Money market securities are securities with a long maturity (longer than a year).
1. How is the process of using financial capital in an effort to create more financial capital in the
future called?
a) Capital budgeting. b) Investment.
c) Project analysis. d) Working capital management.
e) Capital structure.
2. Which component of the investment process is involved in establishing the investment policy?
a) Investment vehicles. b) Investor characteristics.
c) Strategy development. d) Strategy implementation.
e) Strategy monitoring.
3. Which component of the investment process is involved in identifying return requirements and
risk tolerance?
a) Investment vehicles. b) Investor characteristics.
c) Strategy development. d) Strategy monitoring.
e) Strategy implementation.
89
C. Oral Questions
1. Assume that the expected return on investing in silver is 21%, oil is 17%, and farmland is 6%.
How should their assets be ranked according to their risk?
2. Is it possible to define one investment strategy that is optimal for all investors? Use the concept
of the investment process to explain your answer.
3. List the five basic components of the investment process.
4. Academics and practitioners agree that stock prices change in response to changes in
macroeconomic factors, industry-level factors, and firm-specific factors. One example of a firm-
specific factor that affects stock prices is corporate earnings announcements. Consider the
following statement: “A company’s stock price will increase if the company announces increases in
earnings and dividends.” Is this statement always true, only sometimes true, or never true?
Carefully justify your answer.

Corporate Accounting is a special branch of accounting which deals with the accounting for
companies, preparation of their final accounts and cash flow statements, analysis and interpretation
of companies' financial results and accounting for specific events like amalgamation, absorption,
preparation of consolidated balance sheets. A public company usually refers to a company that is
permitted to offer its registered securities (stocks, bonds, etc.) for sale to the general public,
typically through a stock exchange, but also may include companies whose stock is traded over the
counter (OTC) via market makers who use non-exchange quotation services such as the OTCBB
and the Pink Sheets. The term "public company" may also refer to a government-owned
corporation. This meaning of a "public company" comes from the tradition of public ownership of
assets and interests by and for the people as a whole (public ownership), and is the less-common
meaning in the United States. Advantages It is able to raise funds and capital through the sale of its
securities. This is the reason why public corporations are so important: prior to their existence, it
was very difficult to obtain large amounts of capital for private enterprises. In addition to being
able to easily raise capital, public companies may issue their securities as compensation for those
that provide services to the company, such as their directors, officers, and employees. PRIVATE
COMPANY The term privately held company refers to the ownership of a business company in
two different ways: first, referring to ownership by non-governmental organizations; and second,
referring to ownership of the company's stock by a relatively small number of holders who do not
trade the stock publicly on the stock market. Because of these two different meanings, the use of
the term should normally be avoided unless the context makes clear which definition is intended.
Less ambiguous terms for a privately held company are unquoted company and unlisted company.
Though less visible than their publicly traded counterparts, private companies have a major
importance in the world's economy. In 2005, the 339 companies on Forbes' survey of closely held
U.S. businesses sold a trillion dollars' worth of goods and services and employed 4 million people.
In 2004, the Forbes' count of privately held U.S. businesses with at least $1 billion in revenue was
only 305. Koch Industries, Bechtel, Cargill, Chrysler, PricewaterhouseCoopers, Flying J, Ernst &
Young, Publix, and Mars are among the largest privately held companies in the United States.
IKEA, Victorinox, and Bosch are examples of Europe's largest privately held companies. There has
90
been a general confusion among corporate managers about whether to have the status of their
company as private or public. Well, it basically depends on the requirement it needs to be. Notably,
many companies prefer it to be private considering the kind of privileges they enjoy being private.
Here’s a brief list of concessions and privileges which favor formation of private limited
companies: Privileges: - Limited liability, - Simple and easy formation, - Immediate
commencement of business upon incorporation, - Liberal payment of remuneration and loans to
directors without any restrictions, - Easier inter-corporate loans - Lesser disclosure requirements -
Tremendous ease in operation - Two directors are enough - Two Shareholders are adequate - Need
not declare dividend - Listing of shares not mandatory - Directors need not hold qualification
shares These continue to be the dominating factors for carrying on trade and industry through the
medium of private limited companies. Limitations: Nevertheless, there are limitations too. Under
the Companies Act, a private limited company is: - prohibited to issue any invitation to the public
to subscribe to any shares or in debentures of the company - to limit the number of its members to
50 - to restrict the right of its members to transfer shares.
Merger Policy Makers
Board of Directors President
Vice President Secretary
Controller Capital Stock
Treasury Stocks Preferred Stocks
Par Value Stipulation
Dividend Privileges Voting Right
Conversion Privileges Callability
Liquidation Preference Corporate Accounting
Top Level Executives Reissue
91
Chapter 12
Decision Making
Introduction
All organizations require accounting information to manage daily operations, plan future
operations, and evaluate past performance. In addition, most organizations must provide external
financial information to taxing authorities, shareholders, regulatory agencies, labor unions, and so
on. Financial accounting is concerned with providing information to external users. The accounting
process that provides information primarily for internal use is called managerial accounting. We
cannot underestimate the role of accounting information in making decisions and the way managers
use accounting information in the decision process. More specifically cost accounting, which is the
process of determining the cost of products or activities, is essential in external and internal
reporting. Generally speaking, decisions can be classified into two categories. 1) Programmed
decisions are routine and repetitive. 2) Unprogrammed decisions are those that occur infrequently
and require a separate response each time.
Importance of Decision Making

Decision making is both an art and a science. It is an art because decisions are made using both
subjective and objective data. Decision makers must decide how to combine a variety of inputs to
arrive at a logical decision. Decision making is a science because many complex decisions can be
reduced to simpler components by means of quantitative methods.
Significance of Decision Making

Virtually every major decision made in an organization depends on accounting information.
Department heads are responsible for budgets that include costs of materials, labor, building space,
and other resources. Production managers need to know how efficiently they are using materials
and labor to manufacture products marketing managers need to know how effective their marketing
programs are in generating sales revenue is the expense of selling the product too high. Should the
product line be dropped? What is the cost of increasing production capacity? Financial managers
need information so that they can report profitability and financial position to investors, creditors,
taxing authorities, and regulatory agencies. All of these decision makers depend on accounting
information, much of which is derived from detailed cost data that accountants develop from daily
92
business activities. The cost data base is particularly useful for preparing managerial reports for
internal decision making.
Steps in Decision Making

Problem Recognition- we should understand what the problem really is and what is not. We should
also understand how critical this problem is in comparison to other problems we might have.
Developing Alternatives- we should understand the cause and effect in this relation, and analyze the
problem logically. We should seek the opinion of experts if necessary.
Evaluation of solutions is the next Step. We should evaluate the effectiveness and the feasibility of
each alternative. Choosing the best solution and implementing it comes next. Evaluating the result
is the last step in decision making by which we can see how successful our decision has been.
The Decision Making Process

Each individual makes decisions in a slightly different way. However, most people agree that the
decision making process includes the following; 1) understanding and defining the problem 2)
Developing alternatives 3) Evaluating the alternatives 4) making the final decision and implement
it, and 5) evaluate the result.
Among the above steps, understanding the problem is very significant. Most people when first
faced with a decision tend to wade right into it without thinking much about it. Frequently people
mistake symptoms for causes. So problem analysis teaches us that the first step in decision making,
i.e. recognizing the problem, is the most important step. Getting a good definition of the real
problem and also finding out what the problem is not, makes it easier for us to come up with a
logical and valid solution.
93

……1. Generally accepted accounting principles were established by Congress in 1933 and are
updated annually by the American Accounting Association.
……2. One purpose of generally accepted accounting principles is to make accounting information
prepared by different companies more com-parable.
……3. An accounting practice can become a "generally accepted accounting principle" through
widespread use, even if the practice is not mentioned in the official pronouncements of the
accounting standard-setting organizations.
1. Financial statements are prepared:

a) Only for publicly owned business organizations.
b) For corporations, but not for sole proprietorships or partnerships.
c) Primarily for the benefit of persons outside of the business organization.
d) In either monetary or nonmonetary terms, depending upon the need of the decision maker.
2. The basic purpose of an accounting system is to:

a) Develop financial statements in conformity with generally accepted accounting principles.
b) Provide as much useful information to decision makers as possible, regardless of cost.
c) Record changes in the financial position of an organization by applying the concepts of double-
entry accounting.
d) Meet an organization's need for accounting information as efficiently as possible.
3. Information is cost effective when:

a) The information aids management in controlling costs.
b) The information is based upon historical costs, rather than upon estimated market values.
c) The value of the information exceeds the cost of producing it.
d) The information is generated by a computer-based accounting system.
94
4. Although accounting information is used by a wide variety of external parties, financial reporting
is primarily directed toward the information needs of:
a) Investors and creditors.
b) Government agencies such as the Internal Revenue Service.
c) Customers.
d) Trade associations and labor unions.
5. A complete set of financial statements for Hartman Company, at December 31, 1999, would
include each of the following, except:
a) Balance sheet as of December 31, 1999.
b) Income statement for the year ended December 31, 1999.
c) Statement of projected cash flows for 2000.
d) Notes containing additional information that is useful in interpreting the financial statements.
6. All of the following are characteristics of managerial accounting, except:

a) Reports are used primarily by insiders rather than by persons outside of the business entity.
b) Its purpose is to assist managers in planning and controlling business operations.
c) Information must be developed in conformity with generally accepted accounting principles or
with income tax regulations.
d) Information may be tailored to assist in specific managerial decisions.
7. In comparison with a financial statement prepared in conformity with generally accepted

accounting principles, a managerial accounting report is more likely to:
a) Be used by decision makers outside of the business organization.
b) Focus upon the operation results of the most recently completed accounting period.
c) View the entire organization as the reporting entity.
d) Be tailored to the specific needs of an individual decision maker.
C. Oral Questions
1. What is the difference between managerial accounting and financial accounting?
2. Explain the steps of decision making process.
95

The supervisor should decide to find ways to reduce excessive noise which may be detrimental
or disturbing. Simple solutions may be placing rubber pads under typewriters, adjustment of
banging doors, lowering the telephone-ring volume, and devices for sound absorption in some work
areas. O the other hand, the supervisor may think about improving work and production by means
of pleasing noise, such as music. Experiments have shown that music can improve morale in
certain situations. This issue should be carefully decided. One authority states that some employers
or plant managers still have the mistaken idea that the purpose of music during working hours is to
play rhythm music to which the workers can keep time, thereby increasing the production schedule.
The principle of work music today is that it is not the music itself which increases production and
improves working relationships, but rather the relief in the monotony of the work period, no matter
what type of work is being done.
Decision Making Process Managerial Accounting
Programmed Decisions Unprogrammed Decisions
Subjective Data Objective Data
Complex Decisions Profitability
Problem Recognition Developing Alternatives
Evaluation of Solutions Choosing the Best Solution
Implementation Logical
Valid External Reporting
Internal Reporting Quantitative Methods
Regulatory Agencies Production Capacity
96
‫‪Types of Natural Accounts in Accounting‬‬ ‫انواع از ماهیت حساب ها در حسابداری‬
‫دارایی ها‬
‫‪Cash‬‬ ‫وجه نقد‬
‫‪Cash is an asset‬‬ ‫وجه نقد یک دارایی محسوب می شود‬
‫‪Cash is increased with a debit‬‬ ‫وجه نقد با بدهکار شدن افزایش می یابد‬
‫‪Cash is decreased with a credit‬‬ ‫وجه نقد با بستانکار شدن کاهش می یابد‬
‫‪Accounts Receivable‬‬ ‫حساب های دریافتنی‬
‫‪Accounts Receivable is an asset‬‬ ‫حساب های دریافتنی دارایی محسوب می شوند‬
‫‪Accounts Receivable is increased with a debit‬‬ ‫حساب های دریافتنی با بدهکار شدن افزایش می یابند‬
‫‪Accounts Receivable is decreased with a credit‬‬ ‫حساب های دریافتنی با بستانکار شدن کاهش می یابند‬
‫‪Building‬‬ ‫ساختمان‬
‫‪Building is an asset‬‬ ‫ساختمان یک دارایی محسوب می شوند‬
‫‪Building in increased with a debit‬‬ ‫ساختمان با بدهکار شدن افزایش می یابند‬
‫‪Building is decreased with a credit‬‬ ‫ساختمان با بستانکار شدن کاهش می یابند‬
‫‪Inventory‬‬ ‫موجودی‬
‫‪Inventory is an asset‬‬ ‫موجودی یک دارایی محسوب می شود‬
‫‪Inventory is increased with a debit‬‬ ‫موجودی با بدهکار شدن افزایش می یابد‬
‫‪Inventory is deceased with a credit‬‬ ‫موجودی با بستانکار شدن کاهش می یابد‬
‫‪Notes Receivable‬‬ ‫اسناد دریافتنی‬
‫‪Notes Receivable is an asset‬‬ ‫اسناد دریافتنی یک دارایی محسوب می شود‬
‫‪Notes Receivable is increased with a debit‬‬ ‫اسناد دریافتنی با بدهکار شدن افزایش می یابد‬
‫‪Notes Receivable is decreased with a credit‬‬ ‫اسناد دریافتنی با بستانکار شدن کاهش می یابد‬
‫‪Land‬‬ ‫زمین‬
‫‪Land is an asset‬‬ ‫زمین یک دارایی محسوب می شود‬
‫‪Land is increased with a debit‬‬ ‫زمین با بدهکار شدن افزایش می یابد‬
‫‪97‬‬
‫‪Land is decreased with a credit‬‬ ‫زمین با بستانکار شدن کاهش می یابد‬
‫‪Equipment‬‬ ‫تجهیزات‬
‫‪Equipment is an asset‬‬ ‫تجهیزات یک دارایی محسوب می شود‬
‫‪Equipment is increased with a debit‬‬ ‫تجهیزات با بدهکار شدن افزایش می یابد‬
‫‪Equipment is decreased with a credit‬‬ ‫تجهیزات با بستانکار شدن کاهش می یابد‬
‫‪Prepaid insurance‬‬ ‫پیش پرداخت بیمه‬
‫‪Prepaid insurance is an asset‬‬ ‫پیش پرداخت بیمه یک دارایی محسوب می شود‬
‫‪Prepaid insurance is increased with a debit‬‬ ‫پیش پرداخت بیمه با بدهکار شدن افزایش می یابد‬
‫‪Prepaid insurance is decrease with a credit‬‬ ‫پیش پرداخت بیمه با بستانکار شدن کاهش می یابد‬
‫‪Petty cash‬‬ ‫تنخواه گردان‬
‫‪Petty cash is an asset‬‬ ‫تنخواه گردان یک دارایی محسوب می شود‬
‫‪Petty cash is increased with a debit‬‬ ‫تنخواه گردان با بدهکار شدن افزایش می یابد‬
‫‪Petty cash is decreased with a credit‬‬ ‫تنخواه گردان با بستانکار شدن کاهش می یابد‬
‫‪Patent‬‬ ‫حق اختراع‬
‫‪Patent is an asset‬‬ ‫حق اختراع یک دارایی محسوب می شود‬
‫‪Patent is increased with a debit‬‬ ‫حق اختراع با بدهکار شدن افزایش می یابد‬
‫‪Patent is decreased with a credit‬‬ ‫حق اختراع با بستانکار شدن کاهش می یابد‬
‫‪Prepaid Rent‬‬ ‫پیش پرداخت اجاره‬
‫‪Prepaid Rent is an asset‬‬ ‫پیش پرداخت اجاره یک دارایی محسوب می شود‬
‫‪Prepaid Rent is increased with a debt‬‬ ‫پیش پرداخت اجاره با بدهکار شدن افزایش می یابد‬
‫‪Prepaid Rent is decreased with a credit‬‬ ‫پیش پرداخت اجاره با بستانکار شدن کاهش می یابد‬
‫‪Trading securities‬‬ ‫اوراق بهادار تجاری‬
‫‪Trading Securities is an asset‬‬ ‫اوراق بهادار تجاری یک دارای محسوب می شود‬
‫‪Trading Securities is increased with a debit‬‬ ‫اوراق بهادار تجاری با بدهکار شدن افزایش می یابد‬
‫‪Trading Securities is decreased with a credit‬‬ ‫اوراق بهادار تجاری با بستانکار شدن کاهش می یابد‬
‫‪98‬‬
Supplies ‫ملزومات‬
Supplies is an asset ‫ملزومات یک دارایی محسوب می شود‬
Supplies is increased with a debit ‫ملزومات با بدهکار شدن افزایش می یابد‬
Supplies is decreased with a credit ‫ملزومات با بستانکار شدن کاهش می یابد‬
Investments ‫سرمایه گذاری ها‬
Investments are assets ‫سرمایه گذاری ها یک دارایی محسوب می شود‬
Investments are increased with debits ‫سرمایه گذاری ها با بدهکار شدن افزایش می یابد‬
Investments are decreased with credits ‫سرمایه گذاری ها با بستانکار شدن کاهش می یابد‬
Interest Receivable ‫بهره دریافتنی‬
Interest Receivable is an asset ‫بهره دریافتنی یک دارایی محسوب می شود‬
Interest Receivable is increased with a debit ‫بهره دریافتنی با بدهکار شدن افزایش می یابد‬
Interest Receivable is decreased with a credit ‫بهره دریافتنی با بستانکار شدن کاهش می یابد‬
Investment in Bonds ‫سرمایه گذاری در اوراق قرضه‬
Investment in Bonds is an asset ‫سرمایه گذاری در اوراق قرضه یک دارایی محسوب می شود‬
Investment in Bonds is increased with a debit ‫سرمایه گذاری در اوراق قرضه با بدهکار شدن افزایش می یابد‬
Investment in Bonds is decreased with a credit ‫سرمایه گذاری در اوراق قرضه با بستانکار شدن کاهش می یابد‬
Available for Sale Securities ‫اوراق بهادار آماده برای فروش‬
Available for Sale Securities is an asset ‫اوراق بهادار آماده برای فروش یک دارایی محسوب می شود‬
Available for Sale Securities is increased with a debit ‫اوراق بهادار آماده برای فروش با بدهکار شدن افزایش می یابد‬
Available for Sale Securities is decreased with a credit ‫اوراق بهادار آماده برای فروش با بستانکار شدن کاهش می یابد‬
Accumulated Depreciation ‫استهالک انباشته‬
Accumulated Depreciation is a contra asset ‫استهالک انباشته کاهنده دارایی محسوب می شود‬
Accumulated Depreciation is increased with a credit ‫استهالک انباشته با بستانکار شدن افزایش می یابند‬
Accumulated Depreciation is decreased with a debit ‫استهالک انباشته با بدهکار شدن کاهش می یابند‬
Allowance for uncollectible accounts ‫ذخیره مطالبات مشکوک الوصول‬
Allowance for uncollectible accounts is a contra asset ‫ذخیره مطالبات مشکوک الوصول کاهنده دارایی محسوب می شود‬
Allowance for uncollectible accounts is increased with a credit ‫ذخیره مطالبات مشکوک الوصول با بستانکار شدن افزایش می یابند‬
99
Allowance for uncollectible accounts is decreased with a debit ‫ذخیره مطالبات مشکوک الوصول با بدهکار شدن کاهش می یابند‬
‫بدهی ها‬
Notes Payable ‫اسناد پرداختنی‬
Notes payable is a liability ‫اسناد پرداختنی یک بدهی محسوب می شود‬
Notes payable is increased with a credit ‫اسناد پرداختنی با بستانکار شدن افزایش می یابد‬
Notes payable is decreased with a debit ‫اسناد پرداختنی با بدهکار شدن کاهش می یابد‬
Loan Payable ‫وام پرداختنی‬
Loan payable is liability ‫وام پرداختنی یک بدهی محسوب می شود‬
Loan payable is increased with a credit ‫وام پرداختنی با بستانکار شدن افزایش می یابد‬
Loan payable is decreased with a debit ‫وام پرداختنی با بدهکار شدن کاهش می یابد‬
Interest payable ‫بهره پرداختنی‬
Interest payable is a liability ‫بهره پرداختنی یک بدهی محسوب می شود‬
Interest payable is increased with a credit ‫بهره پرداختنی با بستانکار شدن افزایش می یابد‬
Interest payable is decreased with a debit ‫بهره پرداختنی با بستانکار شدن کاهش می یابد‬
Insurance Payable ‫بیمه پرداختنی‬
Insurance payable is a liability ‫بیمه پرداختنی یک بدهی محسوب می شود‬
Insurance payable is increased with a credit ‫بیمه پرداختنی با بستانکار شدن افزایش می یابد‬
Insurance payable is decreased with a debit ‫بیمه پرداختنی با بدهکار شدن کاهش می یابد‬
Dividends Payable ‫سود سهام پرداختنی‬
Dividends payable is a liability ‫سود سهام پرداختنی یک بدهی محسوب می شود‬
Dividends payable is increased with a credit ‫سود سهام پرداختنی با بستانکار شدن افزایش می یابد‬
Dividends payable is decreased with a debit ‫سود سهام پرداختنی با بدهکار شدن کاهش می یابد‬
Bonds Payable ‫اوراق قرضه پرداختنی‬
Bonds payable is a liability ‫اوراق قرضه پرداختنی یک بدهی محسوب می شود‬
Bonds payable is increased with a credit ‫اوراق قرضه پرداختنی با بستانکار شدن افزایش می یابد‬
100
‫‪Bonds payable is decreased with a debit‬‬ ‫اوراق قرضه پرداختنی با بدهکار شدن کاهش می یابد‬
‫‪Accounts Payable‬‬ ‫حساب های پرداختنی‬
‫‪Accounts payable is a liability‬‬ ‫حساب های پرداختنی یک بدهی محسوب می شود‬
‫‪Accounts payable is increased with a credit‬‬ ‫حساب های پرداختنی با بستانکار شدن افزایش می یابد‬
‫‪Accounts payable is decreased with a debit‬‬ ‫حساب های پرداختنی با بدهکار شدن کاهش می یابد‬
‫‪Unearned Revenue‬‬ ‫درآمد تحقق نیافته‬
‫‪Unearned revenue is a liability‬‬ ‫درآمد تحقق نیافته یک حساب بدهی محسوب می شود‬
‫‪Unearned revenue is increased with a credit‬‬ ‫درآمد تحقق نیافته با بستانکار شدن افزایش می یابد‬
‫‪Unearned revenue is decreased with a debit‬‬ ‫درآمد تحقق نیافته با بدهکار شدن کاهش می یابد‬
‫‪Warranty liability‬‬ ‫بدهی ضمانت‬
‫‪Warranty liability is a liability‬‬ ‫بدهی ضمانت یک بدهی محسوب می شود‬
‫‪Warranty liability is increased with a credit‬‬ ‫بدهی ضمانت با بستانکار شدن افزایش می یابد‬
‫‪Warranty liability is decreased with a debit‬‬ ‫بدهی ضمانت با بدهکار شدن کاهش می یابد‬
‫‪Salaries Payable‬‬ ‫حقوق پرداختنی‬
‫‪Salaries Payable is a liability‬‬ ‫حقوق پرداختنی یک بدهی محسوب می شود‬
‫‪Salaries Payable is increased with a credit‬‬ ‫حقوق پرداختنی با بستانکار شدن افزایش می یابد‬
‫‪Salaries Payable is decreased with a debit‬‬ ‫حقوق پرداختنی با بدهکار شدن کاهش می یابد‬
‫‪Obligation under capital lease‬‬ ‫تعهدات ناشی از اجاره های سرمایه ای‬
‫‪Obligation under capital lease is a liability‬‬ ‫تعهدات ناشی از اجاره های سرمایه ای یک بدهی محسوب می شود‬
‫‪Obligation under capital lease is increased with a credit‬‬ ‫تعهدات ناشی از اجاره های سرمایه ای با بستانکار شدن افزایش می یابد‬
‫‪Obligation under capital lease is decreased with a debit‬‬ ‫تعهدات ناشی از اجاره های سرمایه ای با بدهکار شدن کاهش می یابد‬
‫‪Medicare/Medicaid payable‬‬ ‫هزینه های پزشکی‪ /‬مداوای پرداختنی‬
‫‪Medicare/Medicaid payable is a liability‬‬ ‫هزینه های پزشکی‪ /‬مداوای پرداختنی یک حساب بدهی محسوب می شود‬
‫‪Medicare/Medicaid payable is increased with a credit‬‬ ‫هزینه های پزشکی‪ /‬مداوای پرداختنی با بستانکار شدن افزایش می یابند‬
‫‪Medicare/Medicaid payable is decreased with a debit‬‬ ‫هزینه های پزشکی‪ /‬مداوای پرداختنی با بدهکار شدن کاهش می یابند‬
‫‪Charitable Contribution Payable‬‬ ‫همکاری و کمک خیر خواهانه پرداختنی‬
‫‪Charitable contribution payable is a liability‬‬ ‫همکاری و کمک خیر خواهانه پرداختنی یک بدهی محسوب می شود‬
‫‪101‬‬
Charitable contribution payable is increased with a credit .‫همکاری و کمک خیر خواهانه پرداختنی با بستانکار شدن افزایش می یابند‬
Charitable contribution payable is decreased with a debit .‫همکاری و کمک خیر خواهانه پرداختنی با بدهکار شدن کاهش می یابند‬
Retirement Contribution Payable ‫مزایای بازنشستگی پرداختنی‬
Retirement contribution payable is a liability ‫مزایای بازنشستگی پرداختنی یک حساب بدهی محسوب می شود‬
Retirement contribution payable is increased with a credit ‫مزایای بازنشستگی پرداختنی با بستانکار شدن افزایش می یابد‬
Retirement contribution payable is decreased with a debit ‫مزایای بازنشستگی پرداختنی با بدهکار شدن کاهش می یابد‬
‫سرمایه‬
Capital Stock ‫سهم سرمایه‬
Capital stock is an equity account ‫سهم سرمایه یک حساب ارزش ویژه محسوب می شود‬
Capital stock is increased with a credit ‫سهم سرمایه با بستانکار شدن افزایش می یابند‬
Capital stock is decreased with a debit ‫سهم سرمایه با بدهکار شدن کاهش می یابند‬
Common Stock ‫سهام عادی‬
Common stock is an equity account ‫سهام عادی یک حساب ارزش ویژه محسوب می شود‬
Common stock is increased with a credit ‫سهام عادی با بستانکار شدن افزایش می یابد‬
Common stock is decreased with a debit ‫سهام عادی با بدهکار شدن کاهش می یابد‬
Dividends ‫سود سهام‬
Dividends is a dividend account ‫سود سهام یک حساب سود سهام توزیعی محسوب می شود‬
Dividends is increased with a debit ‫سود سهام با بدهکار شدن افزایش می یابد‬
Dividends is decreased with a credit ‫سود سهام با بستانکار شدن کاهش می یابد‬
Retained Earnings ‫سود انباشته‬
Retained earnings is an equity ‫سود انباشته یک حساب ارزش ویژه محسوب می شود‬
Retained earnings is increased with a credit ‫سود انباشته با بستانکار شدن افزایش می یابد‬
Retained earnings is decreased with a debit ‫سود انباشته با بدهکار شدن کاهش می یابد‬
Treasury Stock ‫سهام خزانه‬
Treasury stock is a contra equity ‫سهام خزانه یک حساب کاهنده حساب ارزش ویژه محسوب می شود‬
Treasury stock is increased with a debit ‫سهام خزانه با بدهکار شدن افزایش می یابد‬
Treasury stock is decreased with a credit .‫سهام خزانه با بستانکار شدن کاهش می یابد‬
102
Paid in capital in excess of par value-common ‫سهام عادی‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
stock
Paid in capital in excess of par value-common stock is ‫سهام عادی یک حساب ارزش‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
an equity account
.‫ویژه محسوب می شود‬
Paid in capital in excess of par value-common stock is ‫سهام عادی با بستانکار شدن‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
increased with a credit
.‫افزایش می یابد‬
Paid in capital in excess of par value-common stock is ‫سهام عادی با بدهکار شدن‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
decreased with a debit
.‫کاهش می یابد‬
Paid in capital in excess of par value- preferred ‫سهام ممتاز‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
stock
Paid in capital in excess of par value- preferred stock is ‫سهام ممتاز یک حساب ارزش‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
an equity account
.‫ویژه محسوب می شود‬
Paid in capital in excess of par value- preferred stock is ‫سهام ممتاز با بستانکار شدن‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
increased with a credit
.‫افزایش می یابد‬
Paid in capital in excess of par value- preferred stock is ‫سهام ممتاز با بدهکار شدن‬-‫سرمایه پرداخت شده بیش از ارزش اسمی‬
decreased with a debit
.‫کاهش می یابد‬
‫درآمد ها‬
Interest Income ‫درآمد بهره‬
Interest income is a revenue account ‫درآمد بهره یک درآمد محسوب می شود‬
Interest income is increased with a credit ‫درآمد بهره با بستانکار شدن افزایش می یابند‬
Interest income is decreased with a debit ‫درآمد بهره با بدهکار شدن کاهش می یابند‬
Investment Income ‫درآمد سرمایه گذاری‬
Investment income is a revenue account ‫درآمد سرمایه گذاری یک درآمد محسوب می شود‬
Investment income is increased with a credit ‫درآمد سرمایه گذاری با بستانکار شدن افزایش می یابد‬
Investment income is decreased with a debit ‫درآمد سرمایه گذاری با بدهکار شدن کاهش می یابند‬
Revenue ‫درآمد‬
Revenue is a revenue account ‫درآمد یک حساب درآمدی محسوب می شود‬
103
Revenue is increased with a credit ‫درآمد با بستانکار شدن افزایش می یابد‬
Revenue is decreased with a debit ‫درآمد با بدهکار شدن کاهش می یابد‬
Sales ‫فروش‬
Sales is a revenue account ‫فروش یک درآمد محسوب می شود‬
Sales is increased with a credit ‫فروش با بستانکار شدن افزایش می یابند‬
Sales is decreased with a debit ‫فروش با بستانکار شدن کاهش می یابند‬
Service Revenue ‫درآمد خدمات‬
Service revenue is a revenue account ‫درآمد خدمات یک حساب درآمدی محسوب می شود‬
Service revenue is increased with a credit ‫درآمد خدمات با بستانکار شدن افزایش می یابند‬
Service revenue is decreased with a debit ‫درآمد خدمات با بدهکار شدن کاهش می یابند‬
Sales Discounts ‫تخفیفات فروش‬
Sales discounts is a contra-revenue account ‫تخفیفات فروش یک حساب کاهنده حساب درآمد فروش محسوب می شود‬
Sales discounts is increased with a debit ‫تخفیفات فروش با بدهکار شدن افزایش می یابند‬
Sales discounts is decreased with a credit ‫تخفیفات فروش با بستانکار شدن کاهش می یابند‬
Sales Returns and Allowances ‫برگشت از فروش و تخفیفات‬
Sales returns and allowances is a contra-revenue account ‫برگشت از فروش و تخفیفات یک کاهنده حساب درآمد فروش محسوب می شود‬
Sales returns and allowances is increased with a debit ‫برگشت از فروش و تخفیفات با بدهکار شدن افزایش می یابند‬
Sales returns and allowances is decreased with a credit ‫برگشت از فروش و تخفیفات با بستانکار شدن کاهش می یابند‬
Dividend Income ‫درآمد سود سهام‬
Dividend income is a revenue account ‫درآمد سود سهام یک حساب درآمد محسوب می شود‬
Dividend income is increased with a credit ‫درآمد سود سهام با بستانکار شدن افزایش می یابند‬
Dividend income is decreased with a debit ‫درآمد سود سهام با بدهکار شدن کاهش می یابند‬
Cash Short (Over) ‫کسر (اضافه) صندوق‬
This account may represent an expense or revenue ‫کسر (اضافه) صندوق بیانگر یک هزینه یا درآمد است‬
If it is debited, it represents a shortage and an expense .‫کسر (اضافه) صندوق اگر بدهکار باشد بیانگر کسری صندوق و هزینه است‬
If it is credited, it represents an overage and a revenue .‫کسر (اضافه) صندوق اگر بستانکار باشد بیانگر اضافی صندوق و هزینه است‬
Gain ‫سود غیر عملیاتی‬
Gain is similar to revenue but(usually relates to other )‫سود غیر عملیاتی مشابه درآمد است اما( معموال به عملیات مستمر مربوط نیست‬
than ongoing operations)
104
‫‪Gain is increased with a credit‬‬ ‫سود غیر عملیاتی با بستانکار شدن افزایش می یابد‬
‫‪Gain is decreased with a debit‬‬ ‫سود غیر عملیاتی با بدهکار شدن کاهش می یابد‬
‫هزینه ها‬
‫‪Amortization Expense‬‬ ‫هزینه استهالک‬
‫‪Amortization Expense is an expense‬‬ ‫هزینه استهالک یک هزینه محسوب می شود‬
‫‪Amortization Expense is increased with a debit‬‬ ‫هزینه استهالک با بدهکار شدن افزایش می یابند‬
‫‪Amortization Expense is decreased with a credit‬‬ ‫هزینه استهالک با بستانکار شدن کاهش می یابند‬
‫‪Advertising Expense‬‬ ‫هزینه تبلیغات‬
‫‪Advertising expense is an expense‬‬ ‫هزینه تبلیغات یک هزینه محسوب می شود‬
‫‪Advertising expense is increased with a debit‬‬ ‫هزینه تبلیغات با بدهکار شدن افزایش می یابند‬
‫‪Advertising expense is decreased with a credit‬‬ ‫هزینه تبلیغات با بستانکار شدن کاهش می یابند‬
‫‪Cost of Goods Sold‬‬ ‫بهای تمام شده کاالی فروش رفته‬
‫‪Cost of Goods Sold is an expense‬‬ ‫بهای تمام شده کاالی فروش رفته یک هزینه محسوب می شود‬
‫‪Cost of Goods Sold is increased with a debit‬‬ ‫بهای تمام شده کاالی فروش رفته با بدهکار شدن افزایش می یابند‬
‫‪Cost of Goods Sold is decreased with a credit‬‬ ‫بهای تمام شده کاالی فروش رفته با بستانکار شدن کاهش می یابند‬
‫‪Employee Benefits Expense‬‬ ‫هزینه مزایای کارکنان‬
‫‪Employee Benefits Expense is an expense‬‬ ‫هزینه مزایای کارکنان یک هزینه محسوب محسوب می شود‬
‫‪Employee Benefits Expense is increased with a debit‬‬ ‫هزینه مزایای کارکنان با بدهکار شدن افزایش می یابند‬
‫‪Employee Benefits Expense is decreased with a credit‬‬ ‫هزینه مزایای کارکنان با بستانکار شدن کاهش می یابند‬
‫‪Freight-In‬‬ ‫هزینه حمل به داخل‬
‫‪Freight-in is an account included in the calculation of net‬‬ ‫هزینه حمل به داخل یک حسابی است که در محاسبه خرید خالص محاسبه می شود‬
‫‪purchases‬‬
‫‪Freight-in is increased with a debit‬‬ ‫هزینه حمل به داخل با بدهکار شدن افزایش می یابند‬
‫‪Freight-in is decreased with a credit‬‬ ‫هزینه حمل به داخل با بستانکار شدن کاهش می یابند‬
‫‪Freight-out‬‬ ‫هزینه حمل به خارج‬
‫‪Freight-out is an expense account‬‬ ‫هزینه حمل به خارج یک هزینه محسوب می شود‬
‫‪Freight-out is increased with a debit‬‬ ‫هزینه حمل به خارج با بدهکار شدن افزایش می یابند‬
‫‪Freight-out is decreased with a credit‬‬ ‫هزینه حمل به خارج با بستانکار شدن کاهش می یابند‬
‫‪105‬‬
Fuel Expense ‫هزینه سوخت‬
Fuel expense is an expense account ‫هزینه سوخت یک هزینه محسوب می شود‬
Fuel expense is increased with a debit ‫هزینه سوخت با بدهکار شدن افزایش می یابند‬
Fuel expense is decreased with a credit ‫هزینه سوخت با بستانکار شدن کاهش می یابند‬
Depreciation Expense )‫هزینه استهالک (دارای های استهالک‬
Depreciation expense is an expense ‫هزینه استهالک (دارای های استهالک) یک هزینه محسوب می شود‬
Depreciation expense is increased with a debit ‫هزینه استهالک (دارای های استهالک) با بدهکار شدن افزایش می یابند‬
Depreciation expense is decreased with a credit ‫هزینه استهالک (دارای های استهالک) با بستانکار شدن کاهش می یابند‬
Insurance Expense ‫هزینه بیمه‬
Insurance expense is an expense ‫هزینه بیمه یک حساب هزینه محسوب می شود‬
Insurance expense is increased with a debit ‫هزینه بیمه با بدهکار شدن افزایش می یابد‬
Insurance expense is decreased with a credit ‫هزینه بیمه با بستانکار شدن کاهش می یابد‬
Interest Expense ‫هزینه بهره‬
Interest expense is an expense ‫هزینه بهره یک حساب هزینه محسوب می شود‬
Interest expense is increased with a debit ‫هزینه بهره با بدهکار شدن افزایش می یابد‬
Interest expense is decreased with a credit ‫هزینه بهره با بستانکار شدن کاهش می یابند‬
Rent Expense ‫هزینه اجاره‬
Rent expense is an expense ‫هزینه اجاره یک هزینه محسوب می شود‬
Rent expense is increased with a debit ‫هزینه اجاره با بدهکار شدن افزایش می یابند‬
Rent expense is decreased with a credit ‫هزینه اجاره با بستانکار شدن کاهش می یابند‬
Service Charge ‫کارمزد‬
Service charge is an expense ‫کارمزد یک هزینه محسوب می شود‬
Service charge is increased with a debit ‫کارمزد با بدهکار شدن افزایش می یابند‬
Service charge is decreased with a credit ‫کارمزد با بستانکار شدن کاهش می یابند‬
Salaries Expense ‫هزینه حقوق‬
Salaries expense is an expense ‫هزینه حقوق یک هزینه محسوب می شود‬
Salaries expense is increased with a debit ‫هزینه حقوق با بدهکار شدن افزایش می یابند‬
Salaries expense is decreased with a credit ‫هزینه حقوق با بستانکار شدن کاهش می یابند‬
106
‫‪Repair Expense‬‬ ‫هزینه تعمیر‬
‫‪Repair expense is an expense‬‬ ‫هزینه تعمیر یک هزینه محسوب می شود‬
‫‪Repair expense is increased with a debit‬‬ ‫هزینه تعمیر با بدهکار شدن افزایش می یابند‬
‫‪Repair expense is decreased with a credit‬‬ ‫هزینه تعمیر با بستانکار شدن کاهش می یابند‬
‫‪Utility Expense‬‬ ‫هزینه خدماتی‬
‫‪Utility expense is an expense‬‬ ‫هزینه خدماتی یک حساب هزینه محسوب می شود‬
‫‪Utility expense is increased with a debit‬‬ ‫هزینه خدماتی با بدهکار شدن افزایش می یابد‬
‫‪Utility expense is decreased with a credit‬‬ ‫هزینه خدماتی با بستانکار شدن کاهش می یابند‬
‫‪Postage Expense‬‬ ‫هزینه پست‬
‫‪Postage expense is an expense account‬‬ ‫هزینه پست یک حساب هزینه محسوب می شود‬
‫‪Postage expense is increased with a debit‬‬ ‫هزینه پست با بدهکار شدن افزایش می یابند‬
‫‪Postage expense is decreased with a credit‬‬ ‫هزینه پست با بستانکار شدن کاهش می یابند‬
‫‪Payroll Tax Expense‬‬ ‫هزینه مالیات بر حقوق و دستمزد‬
‫‪Payroll tax expense‬‬ ‫هزینه مالیات بر حقوق و دستمزد یک حساب هزینه محسوب می شود‬
‫‪Payroll tax expense‬‬ ‫هزینه مالیات بر حقوق و دستمزد با بدهکار شدن افزایش می یابند‬
‫‪Payroll tax expense‬‬ ‫هزینه مالیات بر حقوق و دستمزد با بستانکار شدن کاهش می یابند‬
‫‪Supplies Expense‬‬ ‫هزینه ملزومات‬
‫‪Supplies expense is an expense‬‬ ‫هزینه ملزومات یک حساب هزینه محسوب می شود‬
‫‪Supplies expense is increased with a debit‬‬ ‫هزینه ملزومات با بدهکار شدن افزایش می یابند‬
‫‪Supplies expense is decreased with a credit‬‬ ‫هزینه ملزومات با بستانکار شدن کاهش می یابند‬
‫‪Warranty Expense‬‬ ‫هزینه ضمانت‬
‫‪Warranty expense is an expense‬‬ ‫هزینه ضمانت یک حساب هزینه محسوب می شود‬
‫‪Warranty expense is increased‬‬ ‫هزینه ضمانت با بدهکار شدن افزایش می یابند‬
‫‪Warranty expense is decreased with a credit‬‬ ‫هزینه ضمانت با بستانکار شدن کاهش می یابند‬
‫‪Uncollectible Accounts Expense‬‬ ‫هزینه مطالبات غیر قابل وصول‬
‫‪Uncollectible accounts expense is an expense account‬‬ ‫هزینه مطالبات غیر قابل وصول یک حساب هزینه محسوب می شود‬
‫‪Uncollectible accounts expense is increased with a debit‬‬ ‫هزینه مطالبات غیر قابل وصول با بدهکار شدن افزایش می یابند‬
‫‪Uncollectible accounts expense is decreased with a credit‬‬ ‫هزینه مطالبات غیر قابل وصول با بستانکار شدن کاهش می یابند‬
‫‪107‬‬
Miscellaneous Expense ‫هزینه های متفرقه‬
Miscellaneous expense is an expense ‫هزینه متفرقه یک حساب هزینه محسوب می شود‬
Miscellaneous expense is increased with a debit ‫هزینه های متفرقه با بدهکار شدن افزایش می یابند‬
Miscellaneous expense is decreased with a credit ‫هزینه های متفرقه با بستانکار شدن کاهش می یابند‬
Loss ‫زیان غیر عملیاتی‬
Loss is similar to an expense,( but usually relates to ‫حساب زیان غیر عملیاتی مشابه هزینه است (اما معموال به عملیات مستمر‬
other than ongoing operations).
.)‫مربوط نیست‬
Loss is increased with a debit .‫زیان غیر عملیاتی با بدهکار شدن افزایش می یابد‬
Loss is decreased with a credit .‫زیان غیر عملیاتی با بستانکار شدن کاهش می یابد‬
Unrealized Loss ‫زیان تحقق نیافته‬
Unrealized loss is similar to an expense, but (usually ‫حساب زیان تحقق نیافته مشابه هزینه است اما ( معموال به عملیات مستمر‬
relates to other than ongoing operations).
.)‫مربوط نیست‬
Unrealized loss is increased with a debit. .‫زیان تحقق نیافته با بدهکار شدن افزایش می یابد‬
Unrealized loss is decreased with a credit. .‫زیان تحقق نیافته با بستانکار شدن کاهش می یابد‬
Various
Currency Exchange Gain/Loss ‫زیان غیر عملیاتی مبادله جاری‬/‫سود‬
Currency exchange/losses are gains and losses recognized ‫سود و زیان غیر عملیاتی در صورت سود و زیان شناسایی می شود‬
on the income statement
Currency exchange losses are recorded with a debit ‫زیان غیر عملیاتی با بدهکار شدن ثبت می شود‬
Currency exchange gain are recorded with a credit ‫سود غیر عملیاتی با بستانکار شدن ثبت می شود‬
Discount on Bonds Payable ‫کسر اوراق قرضه پرداختنی‬
Discount on bounds payable is a contra account to bonds ‫کسر اوراق قرضه پرداختنی کاهنده اوراق قرضه پرداختنی محسوب می شود‬
payable
Discount on bonds payable is increased with a debit ‫کسر اوراق قرضه پرداختنی با بدهکار شدن افزایش می یابد‬
Discount on bounds payable is decreased with a credit ‫کسر اوراق قرضه پرداختنی با بستانکار شدن کاهش می یابد‬
108
Discount on Note Payable ‫کسر اسناد پرداختنی‬
Discount on Note Payable is a contra-liability ‫کسر اسناد پرداختنی کاهنده اسناد پرداختنی محسوب می شود‬
Discount on Note Payable is increased with a debit ‫کسر اسناد پرداختنی با بدهکار شدن افزایش می یابد‬
Discount on Note Payable is decreased with a credit ‫کسر اسناد پرداختنی با بستانکار شدن کاهش می یابد‬
Income Summary ‫خالصه سود و زیان‬
Income summary is not a financial statement account ‫خالصه سود و زیان جز حساب های صورت های مالی نیست‬
Income summary is credited for the total amount of ‫خالصه سود و زیان برای مبلغ کل درآمدها بستانکار می شود‬
revenues
Income summary is debited for the total amount of ‫خالصه سود و زیان برای مبلغ کل هزینه ها بدهکار می شود‬
expenses
Premium on Bonds Payable ‫صرف اوراق قرضه پرداختنی‬
Premium on bonds payable is an adjunct account to bonds ‫صرف اوراق پرداختنی به حساب اوراق پرداختنی افزوده می شود‬
payable
Premium on bonds payable is increased with a credit ‫صرف اوراق قرضه پرداختنی با بستانکار شدن افزایش می یابد‬
Premium on bonds payable is decreased with a debit ‫صرف اوراق قرضه پرداختنی با بدهکار شدن کاهش می یابد‬
Purchase Discounts ‫تخفیفات خرید‬
Purchase discounts is a contra purchases account ‫تخفیفات خرید کاهنده حساب خرید محسوب می شود‬
Purchase discounts is increased with a credit ‫تخفیفات خرید با بستانکار افزایش می یابد‬
Purchase discounts is decreased with a debit ‫تخفیفات خرید با بدهکار شدن کاهش می یابد‬
Purchases ‫خرید‬
Purchases is an account used to calculate cost of goods ‫حساب خرید برای محاسبه بهای تمام شده کاالی فروش رفته و موجودی ها به‬
sold and inventory
‫کار می رود‬
Purchases is increased with a debit ‫حساب خرید با بدهکار شدن افزایش می یابد‬
Purchases is decreased with a credit ‫حساب خرید با بستانکار شدن کاهش می یابد‬
Purchase Returns and Allowances ‫برگشت از خرید و تخفیفات‬
Purchase returns and allowances is a contra purchases ‫حساب برگشت از خرید و تخفیفات کاهنده حساب خرید محسوب می شود‬
account
Purchase returns and allowances is increased with a credit ‫حساب برگشت از خرید و تخفیفات با بستانکار شدن افزایش می یابد‬
Purchase return and allowances is decreased with a debit ‫حساب برگشت از خرید و تخفیفات با بدهکار شدن کاهش می یابد‬
Unrealized Gain ‫سود تحقق نیافته ناشی از نگهداری دارای ها‬
Unrealized gain is a gain (similar to a revenue) ‫حساب سود تحقق نیافته یک سود غیر عملیاتی محسوب می شود (شبیه‬
109
)‫درآمد است‬
Unrealized gain is increased with a credit ‫حساب سود تحقق نیافته با بستانکار شدن افزایش می یابد‬
Unrealized gain is decreased with a debit ‫حساب سود تحقق نیافته با بدهکار شدن کاهش می یابد‬
110
A Short Dictionary of Words

A
Account a record summarizing all the information pertaining to a single item in the accounting equation
Account balance the amount in an account
Account number the number assigned to an account
Account title the name given to an account
Accounting planning, recording, analyzing, and interpreting financial information
Accounting cycle the series of accounting activities included in recording financial information for a fiscal
period
Accounting equation an equation showing the relationship among assets, liabilities, and owner’s equity
Accounting period see Fiscal period
Accounting records organized summaries of a business’s financial activities
Accounting system a planned process for providing financial information that will be useful to management
Accounts expenses; expenses incurred in one fiscal period but not paid until a later fiscal period
Accounts payable ledger a subsidiary ledger containing only accounts for vendors from whom items are
purchased or bought on account
Accounts receivable ledger a subsidiary ledger containing only accounts for charge customers
Accounts receivable turnover ratio the number of times the average amount of accounts receivable is
collected during a specified period
Accrual basis of accounting the accounting method that records revenues when they are earned and
expenses when they are incurred
Accrued expenses; expenses incurred in one fiscal period but not paid until a later fiscal period
Accrued interest expense interest incurred but not yet paid
Accrued interest income interest earned but not yet received
Accrued revenue; revenue earned in one fiscal period but not received until a later fiscal period
Accumulated depreciation the total amount of depreciation expense that has been recorded since the
purchase of a plant asset
Acid-test ratio a ratio that shows the numeric relationship of quick assets to current liabilities
Adjusting entries journal entries recorded to update general ledger accounts at the end of a fiscal period
Adjustments changes recorded on a work sheet to update general ledger accounts at the end of a fiscal
period
Administrative expenses budget schedule a statement that shows the projected expenses for all operating
expenses not directly related to selling operations
Aging accounts receivable analyzing accounts receivable according to when they are due
Allowance method of recording losses from uncollectible accounts crediting the estimated value of
uncollectible accounts to a contra account
111
Amortization recognizing a portion of an expense in each of several years

Appropriations authorizations to make expenditures for specified purposes
Articles of incorporation a written application requesting permission to form a corporation
Assessed value the value of an asset determined by tax authorities for the purpose of calculating taxes
Asset anything of value that is owned
Auditing the independent reviewing and issuing of an opinion on the reliability of accounting records
Auditor a person who examines the records that supports the financial records of a business to assure that
generally accepted accounting principles (GAAP) are being followed
Automatic check deposit depositing payroll checks directly to an employee’s checking or savings account
in a specific bank
Average number of days’ sales in merchandise inventory the period of time needed to sell an average
amount of merchandise inventory
B
Bad debts see Uncollectible accounts
Balance sheet a financial statement that reports assets, liabilities, and owner’s equity on a specific date
Bank statement a report of deposits, withdrawals, and bank balances sent to a depositor by a bank
Bill of exchange sees Draft
Bill of lading a receipt signed by the authorized agent of a transportation company for merchandise received
that also serves as a contract for the delivery of the merchandise
Blank endorsement an endorsement consisting only of the endorser’s signature
Board of directors a group of persons elected by the stockholders to manage a corporation
Bond a printed, long-term promise to pay a specified amount on a specific date and to pay interest at stated
intervals
Bond issue all the bonds representing the total amount of a loan
Bond sinking fund an amount set aside to pay a bond issue when due
Book inventory see perpetual inventory
Book value the difference between an asset’s account balance and its related contra account balance
Book value of a plant asset the original cost of a plant asset minus accumulated depreciation
Book value of accounts receivable the difference between the balances of Accounts Receivable and its
contra account, Allowance for Uncollectible Accounts
Book value per share sees Equity per share
Breakeven point the amount of sales at which net sales is exactly the same as total costs
Budget a written financial plan of a business for a specific period of time, expressed in dollars
Budget period the length of time covered by a budget
112
Budgeted income statement a statement that shows a company’s projected sales, costs, expenses, and net
income
Budgeting planning the financial operations of a business
C
Capital the account used to summarize the owner’s equity in a business
Capital stock total shares of ownership in a corporation
Cash basis of accounting the accounting method that records revenues when they are received and
expenses when they are paid
Cash budget a statement that shows for each month or quarter a projection of a company’s beginning cash
balance, cash receipts, cash payments, and ending cash balance
Cash discount a deduction from the invoice amount, allowed by a vendor to encourage early payment
Cash flow the cash receipts and cash payments of a company
Cash over a petty cash on hand amount that is more than a recorded amount
Cash payments budget schedule projected cash payments
Cash payments journal a special journal used to record only cash payment transactions
Cash receipts budget schedule projected cash receipts
Cash receipts journal a special journal used to record only cash receipt transactions
Cash sale a sale in which cash is received for the total amount of the sale at the time of the transaction
Cash short petty cash on hand amount that is less than a recorded amount
Certificate of deposit a document issued by a bank as evidence of money invested with the bank
Charge sale see Sale on account
Chart of accounts a list of accounts used by a business
Charter the approved articles of incorporation
Check a business form ordering a bank to pay cash from a bank account
Check register a journal used in a voucher system to record cash payments
Checking account, a bank account from which payments can be ordered by a depositor
Closing entries journal entries used to prepare temporary accounts for a new fiscal period
Commercial invoice a statement prepared by the seller of merchandise addressed to the buyer, showing a
detailed listing and description of merchandise sold, including prices and terms
Common stock; stock that does not give stockholders any special preferences
Comparative income statement an income statement containing sales, cost, and expense information for
two or more years
Component percentage the percentage relationship between one financial statement item and the total that
includes that item
113
Consignee the person or business who receives goods on consignment

Consignment goods that are given to a business to sell, but for which title to the goods remains with the
vendor
Consignor the person or business who gives goods on consignment
Contra account an account that reduces a related account on a financial statement
Contra balance an account balance that is opposite the normal balance
Contract of sale a document that details all the terms agreed to by seller and buyer for a sales transaction
Contribution margin income determined by subtracting all variable costs from net sales
Controlling account an account in a general ledger that summarizes all accounts in a subsidiary ledger
Corporation an organization with the legal rights of a person and which may be owned by many persons
Correcting entry a journal entry made to correct an error in the ledger
Cost accounting the determination and control of costs of a business enterprise
Cost ledger a ledger containing all cost sheets for products in the process of being manufactured
Cost of goods sold see Cost of merchandise sold
Cost of merchandise the price a business pays for goods it purchases to sell
Cost of merchandise sold the total original price of all merchandise sold during a fiscal period
Credit an amount recorded on the right side of a T account
Credit card sale a sale in which a credit card is used for the total amount of the sale at the time of the
transaction
Credit memorandum a form prepared by the vendor showing the amount deducted for returns and
allowances
Creditor a person or organization to whom a liability is owed
Current assets cash and other assets expected to be exchanged for cash or consumed within a year
Current liabilities; liabilities due within a short time, usually within a year
Current ratio a ratio that shows the numeric relationship of current assets to current liabilities
Customer a person or business to whom merchandise or services are sold
D
Date of a note the day a note is signed
Date of declaration the date on which a board of directors votes to distribute a dividend
Date of payment the date on which dividends are actually to be paid to stockholders
Debit an amount recorded on the left side of a T account
Debit card a bank card that, when making purchases, automatically deducts the amount of the purchase
from the checking account of the cardholder
Debit memorandum a form prepared by the customer showing the price deduction taken by the customer
for returns and allowances
Debt ratio the ratio found by dividing total liabilities by total assets
114
Declaring a dividend action by a board of directors to distribute corporate earnings to stockholders

Declining-balance method of depreciation multiplying the book value by a constant depreciation rate at
the end of each fiscal period
Deferred revenue sees unearned revenue
Deficit the amounts by which allowances to partners exceed net income
Departmental accounting system an accounting system showing accounting information for two or more
departments
Departmental margin the revenue earned by a department less its cost of merchandise sold and less its
direct expenses
Departmental margin statement a statement that reports departmental margin for a specific department
Departmental statement of gross profit a statement prepared at the end of a fiscal period showing the
gross profit for each department
Depletion the decrease in the value of a plant asset because of the removal of a natural resource
Depreciation expense the portion of a plant asset’s cost that is transferred to an expense account in each
fiscal period during a plant asset’s useful life
Direct expense an operating expense identifiable with and chargeable to the operation of a specific
department
Direct labor salaries of factory workers who make a product
Direct materials; materials that are of significant value in the cost of and that become an identifiable part of
a finished product
Direct write-off method of recording losses from uncollectible accounts recording uncollectible accounts
expense only when an amount is actually known to be uncollectible
Discount on capital stock an amount less than par or stated value at which capital stock is sold
Dishonored check a check that a bank refuses to pay
Dishonored note a note that is not paid when due
Distribution of net income statement a partnership financial statement showing net income or loss
distribution to partners
Dividends earnings distributed to stockholders
Double-entry accounting the recording of debit and credit parts of a transaction
Doubtful accounts see Uncollectible accounts
Draft a written, signed, and dated order from one party ordering another party, usually a bank, to pay money
to a third party
E
Earnings per share the amount of net income belonging to a single share of stock
Electronic funds transfer a computerized cash payments system that uses electronic impulses to transfer
funds
115
Employee benefits payments to employees for non-working hours and to insurance and retirement
programs
Employee earnings record a business form used to record details affecting payments made to an employee
Encumbrance a commitment to pay for goods or services that have been ordered but not yet provided
Endorsement a signature or stamp on the back of a check transferring ownership
Endorsement in full sees Special endorsement
Entry information for each transaction recorded in a journal
Equities financial rights to the assets of a business
Equity per share the amount of total stockholders’ equity belonging to a single share of stock
Equity ratio the ratio found by dividing stockholders’ equity by total assets
Estimated salvage value the amount an owner expects to receive when a plant asset is removed from use
Ethics the principles of right and wrong that guide an individual in making decisions
Exhibit sees supporting schedule
Expenditures cash disbursements and liabilities incurred for the cost of goods delivered or services
rendered
Expense a decrease in owner’s equity resulting from the operation of a business
Exports goods or services shipped out of a seller’s home country to a foreign country
F
Face amount see Principal of a note
Factory overhead all expenses other than direct materials and direct labor that apply to the making of
products
Federal unemployment tax a federal tax used for state and federal administrative expenses of the
unemployment program
FIFO see First-in, first-out inventory costing method
File maintenance the procedure for arranging accounts in a general ledger, assigning account numbers, and
keeping records current
Financial accounting the recording of a business’s financial activities and the periodic preparation of
financial reports
Financing activities cash receipts and payments involving debt or equity transactions
Finished goods manufactured products that are fully completed
Finished goods ledger a ledger containing records of all finished goods on hand
First-in, first-out inventory costing method using the price of merchandise purchased first to calculate the
cost of merchandise sold first
Fiscal period the length of time for which a business summarizes and reports financial information
Fixed assets see Plant assets
Fixed costs total costs that remain constant regardless of change in business activity
116
Fund a governmental accounting entity with a set of accounts in which assets always equal liabilities plus
equities
G
Gain on plant assets revenue that results when a plant asset is sold for more than book value
General amount column a journal amount column that is not headed with an account title
General fixed assets governmental properties that benefit future periods
General journal a journal with two amount columns in which all kinds of entries can be recorded
General ledger a ledger that contains all accounts needed to prepare financial statements
Goodwill the value of a business in excess of the total investment of owners
Gross earnings see Total earnings
Gross pay sees Total earnings
Gross profit method of estimating inventory estimating inventory by using the previous year’s percentage
of gross profit on operations
Gross profit on sales the revenue remaining after cost of merchandise sold has been deducted
H
Horizontal analysis sees Trend analysis
I
Imports goods or services bought from a foreign country and brought into a buyer’s home country
Income statement a financial statement showing the revenue and expenses for a fiscal period
Indirect expense an operating expense chargeable to overall business operations and not identifiable with a
specific department
Indirect labor salaries paid to factory workers who are not actually making products
Indirect materials; materials used in the completion of a product that are of insignificant value to justify
accounting for separately
Intangible assets; assets of a non-physical nature that have value for a business
Interest an amount paid for the use of money for a period of time
Interest expense the interest accrued on money borrowed
Interest income the interest earned on money loaned
Interest rate of a note the percentage of the principal that is paid for use of the money
Interim departmental statement of gross profit a statement showing gross profit for each department for a
portion of a fiscal period
Internal auditor sees Auditor
Inventory the amount of goods on hand
117
Inventory record a form used during a periodic inventory to record information about each item of
merchandise on hand
Investing activities cash receipts and cash payments involving the sale or purchase of assets used to earn
revenue over a period of time
Invoice a form describing the goods or services sold, the quantity, and the price
J
Journal a form for recording transactions in chronological order
Journalizing recording transactions in a journal
L
Last-in, first-out inventory costing method using the price of merchandise purchased last to calculate the
cost of merchandise sold first
Ledger a group of accounts
Letter of credit a letter issued by a bank guaranteeing that a named individual or business will be paid a
specified amount, provided stated conditions are met
Liability an amount owed by a business
LIFO sees Last-in, first-out inventory costing method
Liquidation of a partnership the process of paying a partnership’s liabilities and distributing remaining
assets to the partners
List price a business’s printed or catalog price
Long-term assets see Plant assets
Long-term liabilities; liabilities owed for more than a year
Loss on plant assets the loss that results when a plant asset is sold for less than book value
Lower of cost or market inventory costing method using the lower of cost or market price to calculate the
cost of ending merchandise inventory
M
MACRS see Modified Accelerated Cost Recovery System
Maker of a note the person or business who signs a note and thus promises to make payment
Management advisory services management advice provided to an organization by a private accountant
Managerial accounting the analysis, measurement, and interpretation of financial accounting information
Marginal income see Contribution margin
Market value the price at which a share of stock may be sold on the stock market
Markup the amount added to the cost of merchandise to establish the selling price
Materials ledger a ledger containing all records of materials
Maturity date of a note the date a note is due
118
Maturity value the amount that is due on the maturity date of a note
Medicare tax a federal tax paid for hospital insurance
Memorandum a form on which a brief message is written describing a transaction
Merchandise goods that a merchandising business purchases to sell
Merchandise inventory the amount of goods on hand for sale to customers
Merchandise inventory turnover ratio the number of times the average amount of merchandise inventory
is sold during a specific period of time
Merchandising business a business that purchases and sells goods
Modified Accelerated Cost Recovery System a depreciation method required by the Internal Revenue
Service to be used for income tax calculation purposes for most plant assets placed in service after 1986
Mutual agency the right of all partners to contract for a partnership
N
Net income the difference between total revenue and total expenses when total revenue is greater
Net loss the difference between total revenue and total expenses when total expenses is greater
Net pay the total earnings paid to an employee after payroll taxes and other deductions
Net purchases total purchases less purchases discount and purchases returns and allowances
Net sales total sales less sales discount and sales returns and allowances
No-par-value stock a share of stock that has no authorized value printed on the stock certificate
Nominal accounts see Temporary accounts
Nonprofit organization; see Not-for-profit organization
Normal balance the side of the account that is increased
Not-for-profit organization an organization providing goods or services with neither a conscious motive
nor expectation of earning a profit
Note see Notes payable
Notes payable promissory notes signed by a business and given to a creditor
Notes receivable promissory notes that a business accepts from customers
Number of a note the number assigned to identify a specific note
Opening an account writing an account title and number on the heading of an account
Operating activities, the cash receipts and payments necessary to operate a business on a day-to-day basis
Operating budget, a plan of current expenditures and the proposed means of financing those expenditures
119
Organization costs fees and other expenses of organizing a corporation

Other revenue and expenses budget schedule budgeted revenue and expenses from activities other than
normal operations
Over applied overhead the amount by which applied factory overhead is more than actual factory overhead
Overhead see Factory overhead
Owner’s equity the amount remaining after the value of all liabilities is subtracted from the value of all
assets
Owners’ equity statement a financial statement that summarizes the changes in owners’ equity during a
fiscal period
Par value a value assigned to a share of stock and printed on the stock certificate
Par-value stock a share of stock that has an authorized value printed on the stock certificate
Partner each member of a partnership
Partnership a business in which two or more persons combine their assets and skills
Partnership agreement a written agreement setting forth the conditions under which a partnership is to
operate
Pay period the period covered by a salary payment
Payee of a note the person or business to whom the amount of a note is payable
Payroll the total amount earned by all employees for a pay period
Payroll register a business form used to record payroll information
Payroll taxes; taxes based on the payroll of a business
Performance report a report showing a comparison of projected and actual amounts for a specific period of
time
Periodic inventory a merchandise inventory determined by counting, weighing, or measuring items of
merchandise on hand
Permanent accounts; accounts used to accumulate information from one fiscal period to the next
Perpetual inventory a merchandise inventory determined by keeping a continuous record of increases,
decreases, and balance on hand
Personal financial planning assisting individuals in managing their personal investments
Personal property all property not classified as real property
Petty cash an amount of cash kept on hand and used for making small payments
Petty cash slip a form showing proof of a petty cash payment
Physical inventory see Periodic inventory
Plant asset record an accounting form on which a business records information about each plant asset
120
Plant assets: assets that will be used for a number of years in the operation of a business
Post-closing trial balance a trial balance prepared after the closing entries are posted
Postdated check a check with a future date on it
Posting transferring information from a journal entry to a ledger account
Preferred stock; stock that gives stockholders preference in earnings and other rights
Prepaid expenses; expenses paid in one fiscal period but not reported as expenses until a later fiscal period
Price-earnings ratio the relationship between the market value per share and earnings per share of a stock
Principal of a note the original amount of a note; sometimes referred to as face amount of a note
Production-unit method of depreciation calculating estimated annual depreciation expense based on the
amount of production expected from a plant asset
Promissory note a written and signed promise to pay a sum of money at a specified time
Proprietorship a business owned by one person
Proving cash determining that the amount of cash agrees with the accounting records
Purchase invoice an invoice used as a source document for recording a purchase on account transaction
Purchase order a completed form authorizing a seller to deliver goods with payment to be made later
Purchases allowance credit allowed for part of the purchase price of merchandise that is not returned,
resulting in a decrease in the customer’s accounts payable
Purchases budget schedule a statement prepared to show the projected amount of purchases that will be
required during a budget period
Purchases discount a cash discount on purchases taken by a customer
Purchases journal a special journal used to record only purchases of merchandise on account
Purchases return credit allowed for the purchase price of returned merchandise, resulting in a decrease in
the customer’s accounts payable
Q
Quick assets those current assets that are cash or that can be quickly turned into cash
Rate earned on average stockholders’ equity the relationship between net income and average
stockholders’ equity
Rate earned on average total assets the relationship between net income and average total assets
Rate earned on net sales the rate found by dividing net income after federal income tax by net sales
Ratio a comparison between two numbers showing how many times one number exceeds the other
Real accounts see Permanent accounts
121
Real estate sees Real property

Real property land and anything attached to the land
Realization cash received from the sale of assets during liquidation of a partnership
Receipt a business form giving written acknowledgement for cash received
Residual value; see Estimated salvage value
Responsibility accounting assigning control of business revenues, costs, and expenses as a responsibility of
a specific manager
Responsibility statements financial statements reporting revenue, costs, and direct expenses under a
specific department’s control
Restrictive endorsement an endorsement restricting further transfer of a check’s ownership
Retail merchandising business a merchandising business that sells to those who use or consume the goods
Retail method of estimating inventory estimating inventory by using a percentage based on both cost and
retail prices
Retained earnings an amount earned by a corporation and not yet distributed to stockholders
Retiring a bond issue paying the amounts owed to bondholders for a bond issue
Revenue an increase in owner’s equity resulting from the operation of a business
Reversing entry an entry made at the beginning of one fiscal period to reverse an adjusting entry made in
the previous fiscal period
S
Salary the money paid for employee services
Sale on account a sale for which cash will be received at a later date
Sales allowance credit allowed a customer for part of the sales price of merchandise that is not returned,
resulting in a decrease in the vendor’s accounts receivable
Sales budget schedule a statement that shows the projected net sales for a budget period
Sales discount a cash discount on sales
Sales invoice an invoice used as a source document for recording a sale on account
Sales journal a special journal used to record only sales of merchandise on account
Sales mix relative distribution of sales among various products
Sales return credit allowed a customer for the sales price of returned merchandise, resulting in a decrease in
the vendor’s accounts receivable
Sales slip see Sales invoice
Sales tax a tax on a sale of merchandise or services
Salvage value see estimated salvage value
Schedule of accounts payable a listing of vendor accounts, account balances, and total amount due all
vendors
122
Schedule of accounts receivable a listing of customer accounts, account balances, and total amount due
from all customers
Scrap value see estimated salvage value
Selling expenses budget schedule, a statement prepared to show projected expenditures related directly to
the selling operations
Serial bonds portions of a bond issue that mature on different dates
Service business a business that performs an activity for a fee
Share of stock each unit of ownership in a corporation
Sight draft a draft payable on sight when the holder presents it for payment
Social security tax a federal tax paid for old-age, survivors, and disability insurance
Sole proprietorship sees Proprietorship
Source document a business paper from which information is obtained for a journal entry
Special amount column a journal amount column headed with an account title
Special endorsement an endorsement indicating a new owner of a check
Special journal a journal used to record only one kind of transaction
State unemployment tax a state tax used to pay benefits to unemployed workers
Stated-value stock no-par-value stock that is assigned a value by a corporation
Statement of cash flows a statement that summarizes cash receipts and cash payments resulting from
business activities during a fiscal period
Statement of cost of goods manufactured a statement showing details about the cost of finished goods
Statement of stockholders’ equity a financial statement that shows changes in a corporation’s ownership
for a fiscal period
Stock certificate written evidence of the number of shares each stockholder owns in a corporation
Stock ledger a file of stock records for all merchandise on hand
Stock record a form used to show the kind of merchandise, quantity received, quantity sold, and balance on
hand
Stockholder an owner of one or more shares of a corporation
Stockholders’ equity value of the owners’ equity in a corporation
Straight-line method of depreciation charging an equal amount of depreciation expense for a plant asset in
each year of useful life
Subscribing for capital stock entering into an agreement with a corporation to buy capital stock and pay at
a later date
Subsidiary ledger a ledger that is summarized in a single general ledger account
Sum-of-the-years-digits method of depreciation using fractions based on years of a plant asset’s useful
life
Supplementary report sees supporting schedule
123
Supporting schedule, a report prepared to give details about an item on a principal financial statement
T account an accounting device used to analyze transactions

Taking an inventory see Periodic inventory
Tax accounting the preparation of tax returns as well as tax planning
Tax base the maximum amount of earnings on which a tax is calculated
Tax levy authorized action taken by a governmental organization to collect taxes by legal authority
Temporary accounts; accounts used to accumulate information until it is transferred to the owner’s capital
account
Term bonds; bonds that all mature on the same date
Terms of sale an agreement between a buyer and a seller about payment for merchandise
Time draft a draft that is payable at a fixed or determinable future time after it is accepted
Time of a note the days, months, or years from the date of signing until a note is to be paid
Total costs all costs for a specific period of time
Total earnings the total pay due for a pay period before deductions
Trade acceptance a form signed by a buyer at the time of a sale of merchandise in which the buyer
promises to pay the seller a specified sum of money, usually at a stated time in the future
Trade discount a reduction in the list price granted to customers
Transaction a business activity that changes assets, liabilities, or owner’s equity
Treasury stock a corporation’s own stock that has been issued and reacquired
Trend analysis a comparison of the relationship between one item on a financial statement and the same
item on a previous fiscal period’s financial statement
Trial balance a proof of the equality of debits and credits in a general ledger
Trustee a person or institution, usually a bank, who is given legal authorization to administer property for
the benefit of property owners
Uncollectible accounts; accounts receivable that cannot be collected

Under applied overhead the amount by which applied factory overhead is less than actual factory overhead
Unearned revenue; revenue received in one fiscal period but not earned until the next fiscal period
Unit cost an amount spent for one of a specific product or service
124
V
Variable costs total costs that change in direct proportion to a change in the number of units
Vendor a business from which merchandise is purchased or supplies or other assets are bought
Vertical analysis sees Component percentage
Voucher a business form used to show an authorized person’s approval for a cash payment
Voucher check a check with space for writing details about a cash payment
Voucher jacket see Voucher
Voucher register a journal used to record vouchers
Voucher system a set of procedures for controlling cash payments by preparing and approving vouchers
before payments are made
Weighted-average inventory costing method using the average cost of beginning inventory plus
merchandise purchased during a fiscal period to calculate the cost of merchandise sold
Wholesale merchandising business a business that buys and resells merchandise to retail merchandising
businesses
Withdrawals assets taken out of a business for the owner’s personal use
Withholding allowance, a deduction from total earnings for each person legally supported by a taxpayer,
including the employee
Work in process products that are being manufactured but are not yet complete
Work sheet a columnar accounting form used to summarize the general ledger information needed to
prepare financial statements
Working capital, the amount of total current assets less total current liabilities
Writing off an account canceling the balance of a customer account because the customer does not pay
125
References:
- Cashin, James, A. Lerner, Joel, J. (1987). “Theory and Problems of Accounting I” 3th Edition,
McGraw-Hill Book Company.
- http://parsitest.com
- http://www.principlesofaccounting.com
- http://www.referenceforbusiness.com
- Maheshwari, S.N. Maheshwari,S.N. (2000). “An Introduction to accountancy” 5thEdition.Vikas

Publishing House Pvt Ltd.
- Patricia A. Libby, Robert Libby, Fred Phillips, Stacey Whitecotton. (2009). “Principles of
Accounting” McGraw-Hill International Edition.
- Robert L. Dixon, Harold E. Arnett, Howard Davidoff. (2007). “Accounting”4th Edition. McGraw-
Hill companies.
- Robert N. Anthony, David F. Hawkins. (2011) “Accounting Text and Cases” 13th Edition.
McGraw. Hill International Edition.
- Smith, Jack, L. Keith, Robert, M. Stephens, William, L. (1989).” Accounting Principles” 3 th

Edition, McGraw-Hill Book Company.
- Smith. Jay M. Skousen, K. Fred. (1989). “Intermediate Accounting”11th Edition, College Division
South-western Publishing Co.
- W. Steve Albercht, Earl K. Stice, James D. Stice, Monte R. Swain. (2008). “Accounting Concepts
and Applications”. Thomson Suth Western.
-Weetman, P. (1999). “Financial & Management Accounting an Introduction” 2nd Edition. Prentice
Hall.
126
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In the name of God

English for the students of Accounting

Mehdi Nabipour Afrouzi

Morteza Malakian Kalebasti

‫بخش اول‪ :‬آگاهی از نقش و معنی کلمات‬

‫‪Rely + able= reliable‬‬ ‫قابل اتکا‬

‫‪Comprehend + ible= comprehensible‬‬ ‫قابل فهم‬

‫‪Response + ible= responsible‬‬ ‫مسول‬

‫‪2. ive, ative‬‬

‫‪Object + ive= objective‬‬ ‫هدف‪-‬عینی‬

‫‪Compare + ative= comparative‬‬ ‫مقایسه ای‬

‫‪Conserve + ative= conservative‬‬ ‫محافظه کارانه‬

Defer + ed= deferred charges ‫مخارج انتقالی به دوره های آتی‬

Use + ful= useful ‫سودمند‬-‫مفید‬

History + ic= historic ‫مهم‬-‫تاریخی‬

Price + less= priceless ‫بسیار گران قیمت‬

Simultaneity + ous= simultaneous ‫همزمان‬

:‫ب) پسوند های اسم ساز‬

Exist + ence= existence ‫وجود‬

Examine + tion= examination ‫ آزمون‬-‫معاینه‬

Product + tion= production ‫تولید‬

Comprehend + sion= comprehension ‫درک‬-‫فهم‬

Extend + sion= extension ‫تمدید‬-‫توسعه‬

Audit + ee= auditee ‫صاحبکار‬

Employ +er=employer ‫کارفرما‬

Audit +or= Auditor ‫حسابرس‬

Direct + or= director ‫عضو هیئت مدیره‬-‫مدیر‬

Bake + ry= bakery ‫نانوایی‬

Neighbor + hood= neighborhood ‫همسایگی‬

Responsible +ity= responsibility ‫مسؤولیت‬

Bio + logy= biology ‫زیست شناسی‬

Psyche + logy= psychology ‫روان شناسی‬

Employ + ment= employment ‫استخدام‬

Useful + ness= usefulness ‫ سودمند‬-‫مفید‬

Partner + ship= partnership ‫مشارکت‬-‫شریک‬

Steward +ship= stewardship ‫مباشرت‬

:‫ج) پسوندهای فعل ساز‬

Regular + ate= regulate ‫منظم کردن‬

Organ + ise or ize= organize or organize ‫سازماندهی کردن‬

‫د)پسوند اسم یا صفت ساز‬

Consult + ant= consultant ‫مشاور‬

Urge + ent= urgent ‫فوری‬

Differ + ent= different ‫ گوناگون‬- ‫متفاوت‬

‫ح) پسوند صفت یا فعل ساز‬

Wood + en= wooden ‫چوبی‬

Dark +en=darken ‫تیره کردن‬-‫تاریک شدن‬

Strength + en= strengthen ‫نیرو بخشیدن‬-‫تقویت کردن‬

‫الف ) پیشوند منفی ساز‬

Dis + ability charge= disability charge ‫هزینه از کار افتادگی‬

Ir + responsible= irresponsible ‫غیر مسول‬

Non + current= noncurrent ‫غیر جاری‬

Un + favorable variance= unfavorable variance ‫انحراف نامساعد‬

‫ب) پیشوند فعل ساز‬

‫پ) سایر پیشوند ها‬

Co + incident= coincident ‫همزمان‬

Fore + cast= forecast ‫پیش بینی کردن‬

Mis + lead= mislead ‫گمراه کردن‬

Multi + national company= multinational company ‫شرکت چند ملیتی‬

Over + applied overhead= overapplied overhead ‫اضافه جذب سربار‬