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Basic Accounting Principles and Budgeting Fundamentals

This document provides an overview of basic accounting principles and budgeting fundamentals. It discusses the classification of accounts into categories like assets, liabilities, and equity. It also describes important accounting concepts such as consistency and materiality. Additionally, it defines accounting statements such as the income statement, balance sheet, and cash flow statement. Finally, it discusses budgets, including their purpose in allocating resources and controlling spending, as well as the objectives and advantages of budgetary control.

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million shiferaw
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80 views

Basic Accounting Principles and Budgeting Fundamentals

This document provides an overview of basic accounting principles and budgeting fundamentals. It discusses the classification of accounts into categories like assets, liabilities, and equity. It also describes important accounting concepts such as consistency and materiality. Additionally, it defines accounting statements such as the income statement, balance sheet, and cash flow statement. Finally, it discusses budgets, including their purpose in allocating resources and controlling spending, as well as the objectives and advantages of budgetary control.

Uploaded by

million shiferaw
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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BASIC ACCOUNTING

PRINCIPLES AND
BUDGETING
FUNDAMENTALS
BASIC PRINCIPLES

• SIGNIFICANT CLASSIFICATION OF ACCOUNTS


• CONCEPTS DEVELOP FOR ACCOUNTING CONCEPTS
• ACCOUNTING STATEMENTS
• BUDGETS AND O
• BUDGETARY CONTROL
1.SIGNIFICANT CLASSIFICATION OF
ACCOUNTS

• IN ACCOUNTING, ACCOUNTS ARE CLASSIFIED INTO DIFFERENT CATEGORIES


BASED ON THEIR NATURE AND PURPOSE.
• COMMON CLASSIFICATIONS INCLUDE ASSETS (SUCH AS CASH, INVENTORY, AND
PROPERTY), LIABILITIES (SUCH AS LOANS AND ACCOUNTS PAYABLE), EQUITY
(SUCH AS OWNER'S CAPITAL), REVENUE (SUCH AS SALES AND SERVICES), AND
EXPENSES (SUCH AS SALARIES AND UTILITIES).
• THE BALANCE SHEET OF A COMPANY GIVES AN INSIGHT INTO THE ASSETS,
LIABILITIES, AND SHAREHOLDERS' EQUITY AT A SPECIFIC POINT IN TIME. IT
INDICATES THE FINANCIAL HEALTH OF THE COMPANY.
• COMPANY ACCOUNTS ARE KNOWN AS A SUMMARIZATION OF AN
ORGANIZATION'S FINANCIAL ACTIVITY WHICH HAS BEEN PERFORMED OVER A
PERIOD OF 12 MONTH.
• FROM OUR COMPANY FIRST YEAR BALANCE SHEET WE HAVE :
 ASSETS- 500,000
 LIABILITY- 277,000
 EQUITY- 233,000
2.CONCEPTS DEVELOPED FOR ACCOUNTING
CONCEPTS:

• ACCOUNTING CONCEPTS ARE PRINCIPLES THAT GUIDE THE RECORDING AND


REPORTING OF FINANCIAL TRANSACTIONS.
• SOME IMPORTANT ACCOUNTING CONCEPTS INCLUDE THE CONCEPT OF GOING
CONCERN (ASSUMING THE BUSINESS WILL CONTINUE OPERATING), THE
CONCEPT OF CONSISTENCY (USING THE SAME ACCOUNTING METHODS OVER
TIME), AND THE CONCEPT OF MATERIALITY (ONLY RECORDING SIGNIFICANT
TRANSACTIONS).
•GOING CONCERN CONCEPT: AWETUTECH APPLIES THE GOING CONCERN CONCEPT, ASSUMING
THAT IT WILL CONTINUE ITS OPERATIONS IN THE LONG TERM. THIS CONCEPT ALLOWS OUR
COMPANY TO PREPARE FINANCIAL STATEMENTS WITH THE ASSUMPTION THAT IT WILL BE ABLE
TO SETTLE ITS OBLIGATIONS AND CONTINUE ITS BUSINESS ACTIVITIES.

•CONSISTENCY CONCEPT: AWETUTECH FOLLOWS THE CONSISTENCY CONCEPT BY USING THE


SAME ACCOUNTING METHODS AND PRINCIPLES CONSISTENTLY OVER TIME. FOR INSTANCE, IF
OUR COMPANY CHOOSES TO USE THE CASH BASIS OF ACCOUNTING TO RECOGNIZE REVENUE,
IT WILL CONTINUE TO USE THIS METHOD CONSISTENTLY IN SUBSEQUENT PERIODS.

•MATERIALITY CONCEPT: AWETUTECH APPLIES THE MATERIALITY CONCEPT WHEN


RECORDING ITS FINANCIAL TRANSACTIONS. MATERIALITY REFERS TO THE
SIGNIFICANCE OF A TRANSACTION OR EVENT IN INFLUENCING THE ECONOMIC
DECISIONS OF USERS
3.ACCOUNTING STATEMENTS:

• ACCOUNTING STATEMENTS, ALSO KNOWN AS FINANCIAL STATEMENTS, ARE


REPORTS THAT SUMMARIZE THE FINANCIAL PERFORMANCE AND POSITION OF A
BUSINESS.
• THE MAIN ACCOUNTING STATEMENTS ARE THE INCOME STATEMENT (SHOWS
REVENUES, EXPENSES, AND NET INCOME), THE BALANCE SHEET (PRESENTS ASSETS,
LIABILITIES, AND EQUITY), AND THE CASH FLOW STATEMENT (PROVIDES
INFORMATION ABOUT CASH INFLOWS AND OUTFLOWS).
• THE FINANCIAL STATEMENTS OF AN ENTITY SHOW THE FOLLOWING FOR THE
REPORTING
PERIOD:
FINANCIAL POSITION AT THE END OF THE PERIOD.
EARNINGS FOR THE PERIOD.

• THE FINANCIAL STATEMENTS THAT SATISFY THESE REQUIREMENTS ARE,


RESPECTIVELY, THE:
BALANCE SHEET (OR STATEMENT OF FINANCIAL POSITION).
INCOME STATEMENT (OR STATEMENT OF EARNINGS).
4.BUDGETS:

• A BUDGET IS A FINANCIAL PLAN THAT ESTIMATES FUTURE INCOME AND


EXPENSES.
• IT HELPS BUSINESSES ALLOCATE RESOURCES, SET FINANCIAL GOALS, AND
CONTROL SPENDING.
• BUDGETS CAN BE CREATED FOR DIFFERENT TIME PERIODS, SUCH AS MONTHLY,
QUARTERLY, OR ANNUALLY.
• FEATURES:
1. FINANCIAL AND/OR QUANTITATIVE STATEMENT.
2. FUTURISTIC – PREPARED AND APPROVED PRIOR TO A DEFINED PERIOD OF TIME.
3. GOAL ORIENTED – FOR THE PURPOSE OF ATTAINING A GIVEN OBJECTIVE.
4. COMPONENTS – INCOME, EXPENDITURE AND EMPLOYMENT OF CAPITAL.
• CAPITAL REFERS TO THE FIXED ASSETS OF AN ORGANIZATION (LIKE FACTORIES,
HOSPITALS, SCHOOLS, AND THEIR MAJOR EQUIPMENT FIT INTO THIS CATEGORY SUCH AS
TANGIBLE PROPERTY, INCLUDING DURABLE GOODS, EQUIPMENT, BUILDINGS,
INSTALLATIONS, LAND).
• A CAPITAL BUDGET IS THEREFORE AN OUTLINE OF PLANED EXPENDITURES ON FIXED
ASSETS, AND CAPITAL BUDGETING IS THE WHOLE PROCESS OF ANALYZING PROJECTS
AND DECIDING WHETHER THEY SHOULD BE INCLUDED IN THE CAPITAL BUDGET.
•AWETUTECH RESEARCHES IN ELECTRONIC TECHNOLOGY AND HAS BEEN INTERESTED IN
PRODUCING LOCAL OR HOMEMADE ELECTRONICS RATHER THAN IMPORTING.

•TOTAL STARTUP COSTS OF OUR COMPANY WILL BE 363,000BIRR OF WHICH WILL BE CONTRIBUTED
BY THE OWNERS AND THE REMAINDER WILL BE SECURED THROUGH A PROPOSED BANK LOAN.
• OBJECTIVES OF BUDGETARY CONTROL
• PLAN FOR THE FUTURE: BUDGETARY CONTROL HELPS ORGANIZATIONS PLAN FOR THE FUTURE
BY FORECASTING FUTURE INCOME AND EXPENDITURES.
• COORDINATE ACTIVITIES: BUDGETARY CONTROL HELPS TO COORDINATE THE ACTIVITIES OF
DIFFERENT DEPARTMENTS AND UNITS WITHIN AN ORGANIZATION.
• CONTROL COSTS: IT HELPS ORGANIZATIONS CONTROL COSTS BY SETTING TARGETS FOR
SPENDING AND TRACKING ACTUAL PERFORMANCE AGAINST THOSE TARGETS.
• IMPROVE EFFICIENCY: IT HELPS ORGANIZATIONS IMPROVE EFFICIENCY BY IDENTIFYING AREAS
WHERE RESOURCES ARE INEFFECTIVE.
• INCREASE PROFITABILITY: BUDGETARY CONTROL CAN HELP ORGANIZATIONS INCREASE
PROFITABILITY BY USING THEIR RESOURCES EFFICIENTLY AND EFFECTIVELY.
• ADVANTAGES OF BUDGETARY CONTROL
• IMPROVED FINANCIAL PERFORMANCE: BUDGETARY CONTROL CAN HELP ORGANIZATIONS
IMPROVE THEIR FINANCIAL PERFORMANCE BY ENSURING THAT THEY ARE USING THEIR
RESOURCES EFFICIENTLY AND EFFECTIVELY.
• BETTER DECISION-MAKING: BUDGETARY CONTROL PROVIDES ORGANIZATIONS WITH A BETTER
UNDERSTANDING OF THEIR FINANCIAL PERFORMANCE.
• INCREASED ACCOUNTABILITY. BUDGETARY CONTROL HELPS TO INCREASE ACCOUNTABILITY
WITHIN AN ORGANIZATION BY SETTING CLEAR AND ACHIEVABLE GOALS FOR INDIVIDUALS,
DEPARTMENTS, AND THE ORGANIZATION.
• IMPROVED COORDINATION AND COMMUNICATION: BUDGETARY CONTROL HELPS TO IMPROVE
COORDINATION AND COMMUNICATION BETWEEN DIFFERENT ORGANIZATIONAL DEPARTMENTS
AND UNITS.
• MORE EFFICIENT USE OF RESOURCES: BUDGETARY CONTROL ENABLES ORGANIZATIONS TO
IDENTIFY AREAS TO REDUCE OR ELIMINATE COSTS.
THANK YOU!

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