የኢትዮጵያ የንግድና ዘርፍ ማኅበራት ምክር ቤት

የኢትዮጵያ ልማት ባንክ

1
Development Bank of Ethiopia Ethiopian Chamber of Commerce &
Sectoral Associations

በኢትዮጵያ ልማት ባንክ

እና
በኢትዮጵያ የንግድና ዘርፍ ማኅበራት ምክር ቤት
 የሂሳብ መግለጫ አዘገጃጀትና እና ትንተና
(Financial Statement Preparation and Analysis)

2
ዝግጅት : ወጋየሁ ወ/ኢየሱስ
ኢትዮጵያ
ÓO 2014 ዓ.ም
3

እንደምን

አደራችሁ?

እንኳን ደህና
መጣችሁ!!!
4
 የሥልጠናው ዋና ዋና ዓላማዎች
5

1. ጥቃቅንና ኣነስተኛ ኢንተርፕራይዞችን የሂሳብ መግለጫ አዘገጃጀት

(Financial Statements Preparation) እና የሂሳብ መግለጫ ትንተና
( Financial Statements Analysis ) መሰረታዊ እውቀት ማስጨበጥ ፤

2. ጥቃቅንና ኣነስተኛ ኢንተርፕራይዞች (SMEs) የተበደሩትን ብር በአግባቡ

መጠቀም እንዲችሉና እያንዳንዱ ገቢ እና ወጪ እንድቆጣጠሩ የኣካውንቲንግ
ሚና ማስገንዘብ ፤
3. ጥቃቅንና ኣነስተኛ ኢንተርፕራይዞች (SMEs) ገበያ ላይ ተወዳዳሪ ሆነው
እንዲዘልቁ እና ቁመናቸው በየጊዜው እንድመዝኑ የሂሳብ መግለጫ ትንተና
ስልቶችን እንድተገብሩ ማብቃት ፡፡
6 የሥልጠናው ንዑስ ዓላማዎች
ሥልጠናው ሲጠናቀቅ ሠልጣኙ:
1) Accounting Cycle (አካውንቲንግ ኡደት ) ይገነዘባል፤
2) Types of Financial Statements ( የ ሂሳብ መግለጫ አይነቶችን ) ይለያል፤

3) Financial Statements Elements ( የሂሳብ መግለጫ ኢለመንቶችን ) ይገነዘባል ፤

4) Financial Statements (የሂሳብ መግለጫዎችን ) ማዘጋጀት ይችላል፤

5) Financial Analysis Techniques ( የሂሳብ መግለጫ ትንተና ስልቶችን ) ይገነዘባል፤

6) Financial Analysis ( የሂሳብ መግለጫ ትንተና ን) ይሠራል ::

 የሥልጠናው አካሄድ
7

1) የጊዜ አስተዳደር
(የሥልጠናው አስተባባሪ እና ሰዓት ተቆጣጣሪ)
2) የሥልጠና ደንቦችን ማውጣት
3) የአነቃቂ ቡድን
(Fun Groups & Energizers )
 What is Accounting ?
(አካውንቲንግ / የሂሳብ መዝገብ አያያዝ ማለት ምን ማለት ነው?)
9
Accounting :
 It is the language of business;
 It is an information system.
 It is a process/activity;
 It is a means and not an end;
 It deals with financial information and
transactions.
 Its outcome are financial/accounting reports;
 What is Accounting ?
10
(አካውንቲንግ / የሂሳብ መዝገብ አያያዝ ማለት ምን ማለት ነው?)
 Accounting - consists of three basic activities. It :

1. Identifies (የመለየት ሂደት)

2. records) (የምዝገባ ሂደት) and

3. communicates (ሪፖርት የማዘጋጀት ሂደት)

the economic events of an organization to interested users.
 What is Accounting ?
11
(አካውንቲንግ / የሂሳብ መዝገብ አያያዝ ማለት ምን ማለት ነው?)
The activities of the accounting
Three Activities process

The accounting process includes

the bookkeeping function.
 Characteristics of Accounting Information
(የ አካዉንቲንግ መረጃ ባህሪያት)
1. Financial - expressed in terms of monetary terms.
2. Quantitative- measurable events.
3. Understandable, complete, accurate, relevant, reliable,
etc.
4. Business transactions - Sources of accounting data.
5. Output- Various summaries, analysis and reports
6. Process - Manual accounting system or an electronic
data processing machines.

1
2
 Users of Accounting Information
13 (የ አካዉንቲንግ መረጃ ተጠቃሚዎች )…
Internal Users Information Need
1. Managers ( የድርጅቱ ሐላፊዎች )
 Top level managers ,  To plan future operations
 Middle level managers,  To conduct day-to-day operations;
 Operational level Mangers,  To evaluate current operations;
 Users of Accounting Information
14
(የ አካዉንቲንግ መረጃ ተጠቃሚዎች ) ….
S. No External users: Information Need
1 Investors (ባለሃብቶች)  financial soundness, profitability
and riskiness of investments
2 Creditors  financial soundness of customers
( አበዳሪዎች እና አቅራብዎች) before granting credit or loan.
3 Customers (ደንበኞች)  product quality, price and
warranties.
4 Government ( መንግስት )  formulation and inaction of national
policies.
5 Tax-authorities  imposing and collecting taxes.
(ገቢዎች እና ጉምሩክ)
 Users of Accounting Information
15
(የ አካዉንቲንግ መረጃ ተጠቃሚዎች ) ….
S. No External users Information Need
…… ………………………………….. ..................................................................
7 Industrial Authorities  development and supervision of
(የኢንዱስትሪ ዎች ተቆጣጣሪ ባለሥልጣን) industries in the country.
8 Board of Directors  business concerns/decisions
( የድርጅቱ ቦርድ አባላት)
9 Parliament ( የሕዝብ ተወካዮች )  national socio economic decisions.
10 Economists and Researchers  research-work & developmental
(የምጣኔ ባለሙያዎች እና thesis.
ተመራማሪዎች )
 Forms of Business Ownership
16
( የንግድ ድርጅቶች )
Proprietorship Partnership Corporation
(የ ግለሰብ ድርጅት) ( የ ሸርክና ድርጅት ) ( የ አክስዮን ማህበር ድርጅት)

 Generally owned by one  Owned by two or more  Ownership divided into

person. persons. shares of stock
 Often small service-type  Often retail and service-  Separate legal entity
businesses type businesses organized under state
 Owner receives any corporation law
 Generally unlimited
profits, suffers any personal liability  Limited liability
losses, and is personally
 Partnership agreement
liable for all debts.
 Accounting Concepts and Principles
(የ አካዉንቲንግ ፅንሰ-ሀሳቦች እና መርሆች )
1.1. Business
Business entity/
entity/ Economic
Economic Entity
Entity Concept
Concept
(( የንግድ
የንግድ ድርጅት እሳቤ ))
ድርጅት እሳቤ
ItIt requires
requires that
that the
the activities
activities of
of the
the business
business entity
entity should
should be
be
kept
kept separate
separate and
and distinct
distinct from
from that
that of
of owners
owners && other
other parties.
parties.
ምሳሌ ፡፡ Bank
ምሳሌ Bank Account
Account ,, Properties,
Properties, Debts,
Debts, Revenues,
Revenues, Expenses,
Expenses,
Accounting
AccountingRecords
Recordsand
andReports,
Reports, etc.
etc.

1
7
 Accounting Concepts and Principles
18
(የ አካዉንቲንግ ፅንሰ-ሀሳቦች እና መርሆች )
ይሞክሩት!
Which one of the following is correct as per Business entity/ Economic Entity
Concept ?
a. Having the same bank account for business and personal purpose.

b. Separation of personal properties from business properties.

c. Buying automobile to the spouse from business income.

d. Reporting personal expenses on the income statement.

 Basic Accounting Equation
19
(የ አካዉንቲንግ መሪ ቀመር )…

Assets Liabilities
(ሃብት ) = + Owner’s Equity
(እዳ) ( የተጣራ ሃብት )

 Provides the underlying framework for recording and summarizing economic events.
 Assets are claimed by either creditors or owners.
 Claims of creditors must be paid before ownership claims.
 Basic Accounting Equation
20
(የ አካዉንቲንግ መሪ ቀመር )…

Asset (ሃብት)
 Resources a business controls.
 provide future economic services or benefits to the entities that use them.
 Cash, Inventory, Equipment, Machine, Furniture, Vehicle, Land, Building, etc.

Assets =
Liabilities
+ Owner’s Equity
(ሃብት ) (እዳ) ( የተጣራ ሃብት )
 Basic Accounting Equation
21
(የ አካዉንቲንግ መሪ ቀመር )…
Liabilitiy (እዳ)
 Claims against assets (debts and obligations).
 creditor’s claim on total assts.
 Creditors - party to whom money is owed.
 Accounts payable, Accrued Liabilities/Expenses, Unearned Revenues,
Mortgage Liability , Lease Liability , etc.

Assets Liabilities Owner’s Equity

(ሃብት ) = + ( የተጣራ ሃብት )
(እዳ)
 Basic Accounting Equation
22
(የ አካዉንቲንግ መሪ ቀመር )…
Owner’s Equity / Capital / Net Asset (የተጣራ ሃብት)
 Ownership claim on total assets.
 Referred to as residual equity.
 Investment by owners and revenues (+)
 Drawings and expenses (-).

Assets Liabilities Owner’s Equity

(ሃብት ) = + ( የተጣራ ሃብት )
(እዳ)
 Owner’s Equity (የተጣራ ሃብት)…
23

Increases in Owner’s Equity

1. Investments by owner are the assets the owner puts into the business.
2. Revenues result from business activities entered into for the purpose of earning
income.
 Common sources of revenue are: sales, fees, services, commissions, interest,
dividends, royalties, and rent.
 Owner’s Equity (የተጣራ ሃብት)…
24

Decreases in Owner’s Equity

1. Drawings An owner may withdraw cash or other assets for personal use.
2. Expenses are the cost of assets consumed or services used in the process of earning
revenue.

 Common expenses are: salaries expense, rent expense, utilities expense, tax expense,
etc.
 Owner’s Equity (የተጣራ ሃብት)…
25

ይሞክሩት!
Net income will result during a time period when:

a. assets exceed liabilities.

b. assets exceed revenues.

c. expenses exceed revenues.

d. revenues exceed expenses.

 Business Transaction (የንግድ ልውውጥ / ግብይት )

 What is a business
transaction ?

Business transaction - is an economic event or condition that directly

changes an entity’s financial condition or directly affects its results of
operations.
2
6
 ይሞክሩት!
27

ምሳሌ: Are the

የሚከተሉት following events
ክስተቶች ይመዘገባሉ / አይመዘገቡም
recorded ? records?
in the accounting

Purchase computer Discuss product Pay rent

Event design with
(ኮምፒውተር ገዛ) customer. (የቢሮ ኪራይ ከፈለ)
(ክስተት)

Criterion Is the financial position (assets, liabilities, or equity) of the company

changed?
( መስፈርት )

Record/ Don’t Record

(ውሳኔ)
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
28

ግብይት (1). Investment by Shareholders. R. Jonson decides to open a computer

programming service which he names Software Company. On September 1, 2014, they invest
€15,000 cash in exchange for €15,000 of ordinary shares.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
29

ግብይት (2). Purchase of Equipment for Cash . Software Company purchases

computer equipment for €7,000 cash.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
30

ግብይት (3). Purchase of Supplies on Credit. Software Company purchases for

€1,600 from Acme Supply Company computer paper and other supplies
expected to last several months. The purchase is on account.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
31

ግብይት (4). Services Provided for Cash. Software Company receives €1,200
cash from customers for programming services it has provided.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
32
ግብይት (5). Purchase of Advertising on Credit. Software Company receives a bill for €250
from the Daily News for advertising but postpones payment until a later date.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
33

ግብይት (6). Services Provided for Cash and Credit. Software Company provides €3,500 of
programming services for customers. The company receives cash of €1,500 from customers,
and it bills the balance of €2,000 on account.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
34

ግብይት (7). Payment of Expenses. Software Company pays the following expenses in cash for
September: store rent €600, salaries and wages of employees €900, and utilities €200.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
35

ግብይት(8). Payment of Accounts Payable. Software Company pays its €250

Daily News bill in cash.
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
36

ግብይት (9). Receipt of Cash on Account. Software Company receives €600 in

cash from customers who had been billed for services [in Transaction (6)].
 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
37

ግብይት (10). Dividends. The corporation pays a dividend of €1,300 in cash.

 Transaction Analysis ( የንግድ ግብይት ትንታኔ )
38
ግብይት (10) . Drawing : R. Jonson withdraws $1,300 in cash from the business for his personal use.
 Accounting Cycle (የ አካዉንቲንግ ኡደት)…
39
 Accounting cycle (የአካውንቲንግ ኡደት)…
40

 Accounting Cycle in Computerized System/data processing cycle

consists of four steps:
1. Data input ( መረጃ ማስገባት)
2. Data storage ( መረጃ ማከማቸት)
3. Data processing ( መረጃ ማጠናቀር)
4. Information Output ( ሪፖርት ማዘጋጀት)
 Accounting cycle (የአካውንቲንግ ኡደት)…
41

DATA INFORMATION

INPUT PROCESS OUTPUT

(ግብዓት) (ሂደት) (ውጤት)

FEEDBACK
 Recording Business Transactions and Preparation
of Financial Statements
42
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት እና የሂሳብ መግለጫ
ዝግጅት)
 I.
43
The Recording Process
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት )
 Flow
Flow of
of Business
Business Transactions
Transactions
44
((የንግድ
የንግድ ግብይቶች ፊሰት ))
ግብይቶች ፊሰት
Transaction Transaction takes Document
1 authorized 2 place 3 prepared

Entry recorded in Entry posted to

4 journal 5 ledger
 Account/ Ledger Account (አካውንት/ ሂሳብ)
45

 Record of increases and decreases in a specific

Account asset, liability, equity, revenue, or expense item.
 Debit = “Left”
 Credit = “Right”

An account can be illustrated in a Account Name

T-account form.
Debit / Dr. Credit / Cr.
Account/ Ledger Account (አካውንት/ ሂሳብ)
46

Debits and Credits ( ዴቢት እና ክሬዲት )

Double-entry system ( ሚዛናዊ የ ምዝገባ ስርዓት )
► Each transaction must affect two or more accounts to keep the basic accounting
equation in balance.
► Recording done by debiting at least one account and crediting another.
► DEBITS must equal CREDITS.
► Italy in 15th century (1494).
► Franciscan monk , Luca Pacioli, Italian Renaissance
mathematician.
 Debits and Credits ( ዴቢት እና ክሬዲት)
47

If Debit amounts are greater than Credit amounts, the account will have a
debit balance.

Account Name
Debit / Dr. Credit / Cr.
Transaction #1 $10,000 $3,000
Transaction #3 8,000

Balance $15,000
 Debits and Credits ( ዴቢት እና ክሬዲት)
48

If Debit amounts are less than Credit amounts, the account will have a
credit balance.

Account Name
Debit / Dr. Credit / Cr.

Transaction #1 $10,000 $3,000

8,000

Balance $1,000
Debits and Credits ( ዴቢት እና ክሬዲት)
49

Assets  Assets - Debits should exceed credits.

Debit / Dr. Credit / Cr.

 Liabilities – Credits should exceed debits.

Normal Balance
 Normal balance is on the increase side.
Chapter
3-23

Liabilities
Debit / Dr. Credit / Cr.

Normal Balance

Chapter
3-24
 Debits and Credits ( ዴቢት እና ክሬዲት)
50

Owner’s Equity  Owner’s investments and revenues increase

Debit / Dr. Credit / Cr.
owner’s equity (credit).
 Owner’s drawings and expenses decrease
Normal Balance
owner’s equity (debit).
Chapter
3-25

Owner’s Capital Owner’s Drawing Helpful Hint Because

Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr. revenues increase owner’s
equity, a revenue account
has the same debit/credit
rules as the Owner’s
Normal Balance Normal Balance Capital account. Expenses
have the opposite effect.
Chapter Chapter
3-25 3-23
Debits and Credits ( ዴቢት እና ክሬዲት)
51

Revenue  The purpose of earning revenues is to benefit

Debit / Dr. Credit / Cr.
the owner(s).
 The effect of debits and credits on revenue
Normal Balance
accounts is the same as their effect on Owner’s
Chapter
3-26 Capital.
 Expenses have the opposite effect: expenses
Expense
Debit / Dr. Credit / Cr. decrease owner’s equity.

Normal Balance

Chapter
3-27
Debits/Credits Rules (የዴቢት እና ክሬዲት ህጎች )
52

ይሞክሩት!
Debits:

a. increase both assets and liabilities.

b. decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d. decrease assets and increase liabilities.

Debits/Credits Rules (የዴቢት እና ክሬዲት ህጎች )
53

ይሞክሩት!
Accounts that normally have debit balances are:

a. assets, expenses, and revenues.

b. assets, expenses, and equity.

c. assets, liabilities, and owner’s drawing.

d. assets, owner’s drawing, and expenses.

 Steps in the Recording Process
54
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት)

Analyze each transaction Enter transaction in a journal Transfer journal information to ledger
accounts

 Business documents - such as a sales slip, a check, a bill, or a cash register

tape, provide evidence of the transaction.
 Steps in the Recording Process
55
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት)
Journal (ጆርናል / የሂሳብ መዝገብ)
 Book of original entry.

 Transactions recorded in chronological order.

 Contributions to the recording process:

1. Discloses the complete effects of a transaction.

2. Provides a chronological record of transactions.

3. Helps to prevent or locate errors because the debit and credit amounts can be
easily compared.
 Steps in the Recording Process
56
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት)
Journalizing - Entering transaction data in the journal.
ምሳሌ # 1 : On September 1, R. Johnson invested $15,000 cash in the business, and
Software Company purchased computer equipment for $7,000 cash.

General Journal

Date Account Title Ref. Debit Credit

Sept. 1 Cash 15,000
Owner’s Capital 15,000

Equipment 7,000
Cash 7,000
 Steps in the Recording Process
57
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት)

ምሳሌ # 2: On July 1, Software Company purchases a delivery truck costing $14,000. It

pays $8,000 cash now and agrees to pay the remaining $6,000 on account.

General Journal

Date Account Title Ref. Debit Credit

July 1 Equipment 14,000
Cash 8,000
Accounts payable 6,000
 Steps in the Recording Process
58
(የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት)
Ledger (ለጄር / የሂሳብ sƒ)
 General Ledger contains the entire group of accounts maintained by a company.
 Steps in the Recording Process
59
( የሂሳብ መዝገብ አያያዝ የምዝገባ ሂደት )
Standard Form of Account ( የተለመደ ሌጀር አካውንት ፎርም )
 Steps of Posting ( ከ ጆርናል ወደ ሌጀር የ ማስተላለፍ ሂደት )
60

Posting –
process of
transferring
amounts from the
journal to the ledger
accounts.
Posting ( ከ ጆርናል ወደ ሌጀር ማስተላለፍ )
61

ይሞክሩት!
Posting:

a. normally occurs before journalizing.

b. transfers ledger transaction data to the journal.

c. is an optional step in the recording process.

d. transfers journal entries to ledger accounts.

 Chart of Accounts ( የሌጀር አካዉንት ቻርት/ዝርዝር)
62
 Accounts and account numbers arranged in sequence in which they are presented in the
financial statements.
 The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
63

Follow these steps:

1. Determine what type of
account is involved.
2. Determine what items
increased or decreased
and by how much.
3. Translate the increases
and decreases into debits
and credits.
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
64
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
65
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
66
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
67
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
68
The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
69
 The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
70
 The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
71
 The Recording Process (የምዝገባ ሂደት ምሳሌዎች )
72
 ይሞክሩት !
Kate Brown recorded the following transactions in a general journal during the month of
March. Post these entries to the Cash account.

Mar. 4 Cash 2,280

Service Revenue 2,280
Mar. 15 Salaries and Wages Expense 400
Cash 400
Mar. 19 Utilities Expense 92
Cash 92
 Summary of Journalizing ( የምዝገባ ሂደት ማጠቃለያ )
74
 Summary of Posting (ከ ጆርናል ወደ ሌጀር የ ማስተላለፍ ሂደት ማጠቃለያ )
75
 Trial Balance ( የ ሂሳብ ሚዛን )
76
 Trial Balance ( የ ሂሳብ ሚዛን )
77

Limitations of a Trial Balance ( የ ሂሳብ ሚዛን ጉድለቶች )

The trial balance may balance even when
1. a transaction is not journalized,

2. a correct journal entry is not posted,

3. a journal entry is posted twice,

4. incorrect accounts are used in journalizing or posting, or

5. offsetting errors are made in recording the amount of a transaction.

78

II.
Adjusting the Accounts
(የሂሳብ መዝገብ አያያዝ የ ሂሳቦች ማስተካከያ ሂደት )
 Timing Issues ( የጊዜ ጉዳይ )
79

Accountants divide the economic life of a business into artificial time periods
(Time Period Assumption).

.....
Jan. Feb. Mar. Apr. Dec.

Generally a
Alternative Terminology
 month, The time period assumption
is also called the
 quarter, or periodicity assumption.
 year.
 Cash Basis Accounting versus Accrual Basis Accounting
80

Cash-Basis Accounting ( ገንዘብ - መር አካውንቲንግ ) :

 Revenues recognized when cash is received.
 Expenses recognized when cash is paid.
 Cash-basis accounting is not in accordance with generally accepted
accounting principles (GAAP).
 Basis of Accounting ( የ አካውንቲንግ ስርዓቶች )
81

Accrual-Basis Accounting ( ድርጊት - መር አካውንቲንግ )

 Transactions recorded in the periods in which the events occur.
 Companies recognize revenues when they perform services (rather than when
cash is received).
 Expenses are recognized when incurred (rather than when paid).
82
Accrual-Basis Accounting ( ድርጊት - መር አካውንቲንግ )

Revenue Recognition Principle ( የገቢ ምዝገባ መርህ )

Recognize revenue in the accounting period

in which the performance obligation is
satisfied.
83
Accrual-Basis Accounting ( ድርጊት - መር አካውንቲንግ )

Expense Recognition Principle ( የወጪ ምዝገባ መርህ )

Match expenses with revenues in the

period when the expense makes its
contribution to revenue.

“Let the expenses follow the revenues.”

 Accrual-Basis Accounting ( ድርጊት - መር አካውንቲንግ )
84

ይሞክሩት !
One of the following statements about the accrual basis of accounting is false? That
statement is:
a. Events that change a company’s financial statements are recorded in the periods in
which the events occur.
b. Revenue is recognized in the period in which the performance obligation is satisfied.
c. The accrual basis of accounting is in accord with generally accepted accounting
principles.
d. Revenue is recorded only when cash is received, and expenses are recorded only
when cash is paid.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
85

 Adjusting Entries -
 Ensure that the revenue recognition and expense recognition principles are
followed.
 Necessary because the trial balance may not contain up-to-date and complete
data.
 Required every time a company prepares financial statements.
 Will include one income statement account and one balance sheet account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
86

ይሞክሩት !
 Adjusting entries are made to ensure that:
a. expenses are recognized in the period in which they are incurred.
b. revenues are recorded in the period in which services are performed.
c. balance sheet and income statement accounts have correct balances at
the end of an accounting period.
d. all of the above.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
87

Types of Adjusting Entries (የ ሂሳቦች ማስተካከያ ዓይነቶች)

Deferrals Accruals

1. Prepaid Expenses. Expenses paid in 1. Accrued Revenues. Revenues for

cash before they are used or consumed. services performed but not yet received in
cash or recorded.

2. Unearned Revenues. 2. Accrued Expenses. Expenses incurred

Cash received before services are but not yet paid in cash or recorded.
performed.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
88

Types of Adjusting Entries (የ ሂሳቦች ማስተካከያ ዓይነቶች)

Trial Balance – Each
account is analyzed to
determine whether it is
complete and up-to-date.
 Adjusting Entries ( የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት )
89

Adjusting Entries for Deferrals ( ድፌራሎችን ማስተካከል )

Deferrals - are expenses or revenues that are recognized at a date later
than the point when cash was originally exchanged. There are two types:

 Prepaid expenses and

 Unearned revenues.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
90

Prepaid Expenses ( ቅድመ-ክፍያ ለወጪ)

Payment of cash, that is recorded as an asset because service or benefit will be received in the
future.

Cash Payment BEFORE Expense Recorded

Prepayments often occur in regard to:

 insurance  rent
 supplies  equipment
 advertising  buildings
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
91

Prepaid Expenses ( ቅድመ-ክፍያ ለወጪ)

 Expire either with the passage of time or through use.
 Adjusting entry:
► Increase (debit) to an expense account and
► Decrease (credit) to an asset account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
92

ምሳሌ : Pioneer Advertising Agency purchased supplies

costing $2,500 on October 5. Pioneer recorded the
payment by increasing (debiting) the asset Supplies. This
account shows a balance of $2,500 in the October 31 trial
balance. An inventory count at the close of business on
October 31 reveals that $1,000 of supplies are still on hand.

Oct. 31 Supplies expense 1,500

Supplies 1,500
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
93
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
94

ምሳሌ : On October 4, Pioneer Advertising Agency paid $600

for a one-year fire insurance policy. Coverage began on October
1. Pioneer recorded the payment by increasing (debiting)
Prepaid Insurance. This account shows a balance of $600 in the
October 31 trial balance. Insurance of $50 ($600 ÷ 12) expires
each month.

Oct. 31 Insurance expense 50

Prepaid insurance 50
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
95
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
96

Depreciation ( የእርጅና ቅናሽ )

 Buildings, equipment, and motor vehicles (assets that provide service for
many years) are recorded as assets, rather than an expense, in the year
acquired.

 Depreciation is the process of allocating the cost of an asset to expense over

its useful life.

 Depreciation does not attempt to report the actual change in the value of the
asset.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
97

ምሳሌ : For Pioneer Advertising, assume that depreciation

on the equipment is $480 a year, or $40 per month.

Oct. 31
Depreciation expense 40
Accumulated depreciation 40

Accumulated Depreciation is called a contra asset

account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
98
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
99

Unearned Revenue (ቅድመ-ክፍያ ለገቢ)

Receipt of cash that is recorded as a liability because the service has not been performed.

Cash Receipt BEFORE Revenue Recorded

Unearned revenues often occur in regard to:

 Rent  Magazine subscriptions
 Airline tickets  Customer deposits
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
100

Unearned Revenues (ቅድመ-ክፍያ ለገቢ)

 Adjusting entry is made to record the revenue for services performed during the
period and to show the liability that remains at the end of the period.
 Results in a decrease (debit) to a liability account and an increase (credit) to a
revenue account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
101

ምሳሌ : Pioneer Advertising Agency received $1,200 on October 2 from a customer for
advertising services expected to be completed by December 31. Unearned Service
Revenue shows a balance of $1,200 in the October 31 trial balance. Analysis reveals that
the company performed $400 of services in October.

Oct. 31 Unearned service revenue 400

Service revenue 400
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
102
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
103

Adjusting Entries for Accruals (አኩራሎችን ማስተካከል )

Accruals are made to record-

 Revenues for services performed

OR

 Expenses incurred

in the current accounting period that have not been recognized through daily
entries.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
104

Accrued Revenues (Assets) ( ያልተሰበሰቡ ገቢዎች )

Revenues for services performed but not yet received in cash or recorded.

Revenue Recorded BEFORE Cash Receipt

Accrued revenues often occur in regard to:

 Rent  Services performed
 Interest
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
105

Accrued Revenues (Assets) ( ያልተሰበሰቡ ገቢዎች )

 Adjusting entry shows the receivable that exists and records the revenues for
services performed.
 Adjusting entry:
► Increases (debits) an asset account and
► Increases (credits) a revenue account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
106

ምሳሌ : In October Pioneer Advertising Agency earned $200 for

advertising services that had not been recorded.

Oct. 31
Accounts receivable 200
Service revenue 200

On November 10, Pioneer receives cash of $200 for the

services performed.

Nov. 10 Cash 200

Accounts receivable 200
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
107
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
108

Accrued Expenses ( Liabilities) ( ያልተከፈሉ ወጪዎች )

Expenses incurred but not yet paid in cash or recorded.

Expense Recorded BEFORE Cash Payment

Accrued expenses often occur in regard to:

 Rent  Taxes
 Interest  Salaries
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
109

Accrued Expenses ( Liabilities ) ( ያልተከፈሉ ወጪዎች )

 Adjusting entry records the obligation and recognizes the expense.
 Adjusting entry:
► Increase (debit) an expense account and
► Increase (credit) a liability account.
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
110

ምሳሌ: Pioneer Advertising Agency signed a three-month note payable in the amount of
$5,000 on October 1. The note requires Pioneer to pay interest at an annual rate of 12%.

Oct. 31 Interest expense 50

Interest payable 50
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
111
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
112

ምሳሌ : Pioneer Advertising Agency last paid salaries on October 26; the next payment
of salaries will not occur until November 9. The employees receive total salaries of $2,000
for a five-day work week, or $400 per day. Thus, accrued salaries at October 31 are
$1,200 ($400 x 3 days).
 Adjusting Entries (የ ሂሳቦች ማስተካከያ ምዝገባ ሂደት)
113
114

III.
Completing the Accounting Cycle
(የአካውንቲንግ ኡደት የ ማጠናቀቅ ሂደት)
 Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ )
115

Worksheet ፡
 Multiple-column form used in preparing financial statements.
 Not a permanent accounting record.
 Five step process.
 Use of worksheet is optional.
Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
116
 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
117
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500
Prepaid Insurance 600
Office Equipment 5,000
Notes Payable 5,000
Accounts Payable 2,500
Unearned Revenue 1,200
Owner's Capital 10,000
Owner's Drawing 500
Service Revenue 10,000

Salaries Expense 4,000

Rent Expense 900
Totals 28,700 28,700

Trial balance amounts come directly from

ledger accounts.
Include all accounts with
balances.
 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
118

Adjusting Entries
 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
119
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Office Equipment 5,000 Adjustments Key:
Notes Payable 5,000
Accounts Payable 2,500
(a) Supplies Used.
Unearned Revenue 1,200 (d) 400 (b) Insurance Expired.
Owner's Capital 10,000
Owner's Drawing 500 (c) Depreciation Expensed.
Service Revenue 10,000 (d) 400 (d) Service Revenue Earned.
(e) 200
Salaries Expense 4,000 (g) 1,200 (e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
Accounts Receivable (e) 200
Interest Expense (f) 50
Enter adjustment amounts, total adjustments
Interest Payable (f) 50 columns,
(g)
Salaries Payable 1,200 and check for equality.
Totals 3,440 3,440

Add additional accounts as needed.

 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
120
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Office Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue 1,200 (d) 400 800
Owner's Capital 10,000 10,000
Owner's Drawing 500 500
Service Revenue 10,000 (d) 400 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200
Rent Expense 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500
Insurance Expense (b) 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50
Interest Payable (f) 50 50
Salaries Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190

Total the adjusted trial balance columns and check

for equality.
 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
121
4. Extend Amounts to Financial Statement Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Office Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Revenue 1,200 (d) 400 800
Owner's Capital 10,000 10,000
Owner's Drawing 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50
Salaries Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600

Extend all revenue and expense account balances to the

income statement columns.
 Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
122
5. Total Columns, Compute Net Income (Loss)
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200 15,200
Supplies 2,500 (a) 1,500 1,000 1,000
Prepaid Insurance 600 (b) 50 550 550
Office Equipment 5,000 5,000 5,000
Notes Payable 5,000 5,000 5,000
Accounts Payable 2,500 2,500 2,500
Unearned Revenue 1,200 (d) 400 800 800
Owner's Capital 10,000 10,000 10,000
Owner's Drawing 500 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50 50
Salaries Payable (g) 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
Totals 10,600 10,600 22,450 22,450
Compute Net Income or Net Loss.
Steps in Preparing a Worksheet ( የሂሳብ ሥራ አጋዥ ሰንጠረዥ አዘገጃጀት ሂደት )
123

ይሞክሩት !
Net income is shown on a worksheet in the:

a. income statement debit column only.

b. balance sheet debit column only.

c. income statement credit column and balance sheet debit column.

d. income statement debit column and balance sheet credit column.

124
Financial Statements Preparation
(የ ሂሳብ መግለጫ አዘገጃጀት)
 Financial Statements (የሂሳብ መግለጫዎች )…
125

 They are the end products of accounting cycle.

 They provide information about ፡
i. the financial position ;
ii.financial performance and
iii. cash flows of an entity that is useful to users in making
business decisions.
 Financial Statements (የሂሳብ መግለጫዎች )…
126

 There are four (4) basic kinds of Financial Statements.

1. Statement of Financial Performance or Income
Statement (የገቢ ና ወጪ መግለጫ )
2. Statement of Owners’ Equity or Capital Statement
(የካፒታል/ የተጣራ ሃብት መግለጫ )
3. Statement of Financial Position or Balance Sheet)
( የሃብትና እዳ መግለጫ )
4. Statement of Cash Flow (የጥሬ ገንዘብ ፍሰት መግለጫ )
 Financial Statements (የሂሳብ መግለጫዎች )…
127
 International Accounting Standards 1 (IAS 1) covers the
guidelines for the presentation, structure and content of
financial statements.
 The main components are:
1) Statement of financial position
2) Statement of profit or loss and other comprehensive income
3) Statement of changes in equity
4) Statement of cash flows
5) Notes to the financial statements
 Financial Statements (የሂሳብ መግለጫዎች )…
128

Income Statement
 Reports the revenues and expenses for a specific period of time.

 Lists revenues first, followed by expenses.

 Shows net income (or net loss).

 Financial Statements (የሂሳብ መግለጫዎች )…
129

Owner’s Equity Statement

 Reports the changes in owner’s equity for a specific period of time.

 The time period is the same as that covered by the income statement.
 Financial Statements (የሂሳብ መግለጫዎች )…
130

Owner’s Equity
 Proprietorship - one capital account.
 Partnership - capital account for each partner.
 Corporation - Capital Stock and Retained Earnings.
 Financial Statements (የሂሳብ መግለጫዎች )…
131

Balance Sheet
 Reports the assets, liabilities, and owner’s equity at a specific date.

 Lists assets at the top, followed by liabilities and owner’s equity.

 Total assets must equal total liabilities and owner’s equity.

 Is a snapshot of the company’s financial condition at a specific moment in time

(usually the month-end or year-end).

LO 8 Understand the four financial statements and how they are prepared.
 Financial Statements (የሂሳብ መግለጫዎች )…
132

Statement of Cash Flows

 Information for a specific period of time.

 Answers the following:

1. Where did cash come from?

2. What was cash used for?

3. What was the change in the cash balance?

 Financial Statements (የሂሳብ መግለጫዎች )…
133

ይሞክሩት !
Which of the following financial statements is prepared as of a specific date?

a. Balance sheet.

b. Income statement.

c. Owner's equity statement.

d. Statement of cash flows.

LO 8 Understand the four financial statements and how they are prepared.
 General Features of Presentation of F/S
( የ ሂሳብ መግለጫ አዘገጃጀት መርሆች)
134

1. Fair presentation & compliance with IFRS

2. Going concern
3. Accrual basis of accounting
4. Materiality & aggregation
5. Offsetting
6. Frequency of reporting
7. Consistency of presentation
 Financial Statements (የሂሳብ መግለጫዎች )
135

Financial
FinancialStatements
Statementsare
areprepared
prepareddirectly
directlyfrom
fromthe
theAdjusted
AdjustedTrial
TrialBalance.
Balance.

Income Owner’s Equity

Balance Sheet
Statement Statement
136
137
 Preparing Statements from a Worksheet
138
(ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የሂሳብ መግለጫዎችን ማዘጋጀት)
1. Income statement is prepared from the income statement columns.

2. Balance sheet and owner’s equity statement are prepared from the balance
sheet columns.

3. Companies journalize and post adjusting entries.

 Preparing Statements from a Worksheet
(ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የሂሳብ መግለጫዎችን ማዘጋጀት)
139
5. Total Columns, Compute Net Income (Loss)
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200 15,200
Supplies 2,500 (a) 1,500 1,000 1,000
Prepaid Insurance 600 (b) 50 550 550
Office Equipment 5,000 5,000 5,000
Notes Payable 5,000 5,000 5,000
Accounts Payable 2,500 2,500 2,500
Unearned Revenue 1,200 (d) 400 800 800
Owner's Capital 10,000 10,000 10,000
Owner's Drawing 500 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries Expense 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200 200
Interest Expense (f) 50 50 50
Interest Payable (f) 50 50 50
Salaries Payable (g) 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
Totals 10,600 10,600 22,450 22,450
 Preparing Statements from a Worksheet
(ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የሂሳብ መግለጫዎችን ማዘጋጀት)

LO 1 Prepare a worksheet.
 Preparing Statements from a Worksheet
(ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የሂሳብ መግለጫዎችን ማዘጋጀት)
 Preparing Statements from a Worksheet
(ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የሂሳብ መግለጫዎችን ማዘጋጀት)
Illustration 4-4
 Preparing Adjusting Entries from a Worksheet
( ከ ሂሳብ ሥራ አጋዥ ሰንጠረዥ የ ሂሳቦች ማስተካከያ መመዝገብ )

 Adjusting entries are prepared from the adjustments columns of the worksheet.
 Journalizing and posting of adjusting entries follows the preparation of financial
statements when a worksheet is used.
 Closing the Books ( ሂሳብ የ መዝጋት ሂደት)
144

At the end of the accounting period, the company makes the accounts ready for
the next period.
 Closing the Books (ሂሳብ የ መዝጋት ሂደት)
145

Preparing Closing Entries

Closing entries formally recognize, in the general ledger, the transfer of
 net income (or net loss) and
 owner’s drawing

to owner’s capital.

Closing entries are only made at the end of the annual accounting period.
 Closing the Books (ሂሳብ የ መዝጋት ሂደት)
146

Note:
Owner’s Drawing is closed directly to
Capital and not to Income Summary
because Owner’s Drawing is not an
Owner’s Capital is a permanent
expense. account; all other accounts are
temporary accounts.
 Closing the Books (ሂሳብ የ መዝጋት ሂደት)
147

Closing
Entries
 Closing the Books (ሂሳብ የ መዝጋት ሂደት)
148

Posting
Closing
Entries
 Post-Closing Trial Balance (ድህረ-መዝጊያ የሂሳብ ሚዛን )
149
Purpose is to prove the equality of the permanent account balances after journalizing
and posting of closing entries.
 Correcting Entries (የሂሳብ ምዝገባ ስህተቶችን የ ማረም ሂደት)
150

Correcting Entries—An Avoidable Step

 Unnecessary if the records are error-free.
 Made whenever an error is discovered.
 Must be posted before closing entries.

Instead of preparing a correcting entry, it is possible to reverse the incorrect entry

and then prepare the correct entry.
 Correcting Entries (የሂሳብ ምዝገባ ስህተቶችን የ ማረም ሂደት)
151

ምሳሌ # 1 : On May 10, Mercato Co. journalized and posted a $50 cash collection on account from
a customer as a debit to Cash $50 and a credit to Service Revenue $50. The company
discovered the error on May 20, when the customer paid the remaining balance in full.

Incorrect entry Cash 50

Service Revenue 50
Correct entry Cash 50
Accounts Receivable 50

Correcting entry Service Revenue 50

Accounts Receivable 50
 Correcting Entries (የሂሳብ ምዝገባ ስህተቶችን የ ማረም ሂደት)
152

ምሳሌ # 2 : On May 18, Mercato purchased on account equipment costing $450. The transaction
was journalized and posted as a debit to Equipment $45 and a credit to Accounts Payable $45.
The error was discovered on June 3,

Incorrect entry Equipment 45

Accounts Payable 45
Correct entry Equipment 450
Accounts Payable 450

Correcting entry Equipment 405

Accounts Payable 405
153

Financial Statements Analysis

(የሂሳብ መግለጫ መተንተን)
 Financial Statements Analysis ( የሂሳብ መግለጫ መተንተን )
154
 It is also called Financial Analysis / Accounting analysis / Analysis of
finance.
 It is the process of analyzing a company's financial statements for
decision-making purposes.
 It is the process of identifying the financial strengths and weaknesses
of the firm by properly establishing relationship between financial
statements items for certain period.
 It is concerned with the selection, evaluation, and interpretation of
financial data to assist investment, financing, and dividend decisions.
 Techniques of Financial Analysis
157
(የሂሳብ መግለጫ ትንተና ስልቶች)

 Major Types of Financial Analysis (ዋና ዋና

የሂሳብ መግለጫ ትንተና ስልቶች )
I. Ratio Analysis ( ሬሾ /አንፃራዊ ትንተና )
II. Horizontal Analysis ( አግድም ትንተና )
III.Vertical Analysis ( ሰያፍ ትንተና )
 I) Ratio Analysis (ሬሾ /አንፃራዊ ትንተና ሬሾ ትንተና ) …
158

 Ratio analysis is an analytical technique that typically

involves a comparison of the relationship between two
financial statement items;
 Financial ratios are used to evaluate the financial
condition and profitability of the firm. Ratio analysis is a
powerful tool of financial analysis. Ratios are more
meaningful if there is standard of measurement or
comparison.
 I) Ratio Analysis (ሬሾ /አንፃራዊ ትንተና ) …
159

ሬሾ በተለያየ መልኩ ሊገለጽ ይችላል:

i. በ ንፅፅር (፡ ) , current ratio of 2:1
ii.በ መቶኛ (%) , profit margin of 2%
iii.በ ዋጋ ( $ ) , EPS of $2.25
 I) Ratio Analysis (ሬሾ /አንፃራዊ ትንተና ) …
160
Major Types of Financial Ratios (ዋና ዋና ሬሾ ዓይነቶች )
I) Liquidity Ratios
 የ ገንዘብ ክምችት መለኪያ ሬሾዎች
II)Asset Management/ Activity /Efficiency Ratios
የ ሃብት አጠቃቀም መለኪያ ሬሾዎች
II)Debt Management Ratios
 የ ብድር አጠቃቀም መለኪያ ሬሾዎች
III)Profitability Tests
 የ ትርፋማነት መለኪያ ሬሾዎች
 1) Liquidity Ratios (የ ገንዘብ ክምችት መለኪያ ሬሾዎች)…
161
….

a) Current Ratio:
 It measures the ability of the firm to meet short-term obligations
from its current assets.
 It is a measure of a firm’s short-term solvency.
 Generally, the Current ratio greater than or equal the standard is
desirable. Thus it must be 1 or more.
 1) Liquidity Ratios (የ ገንዘብ ክምችት መለኪያ ሬሾዎች)…
162

b) Quick/Acid Test Ratio :

 It measures an entity's ability to pay its current liabilities by using
its most liquid assets excluding least liquid inventories.
 Generally, Quick ratio greater than or equal to the standard is
desirable. Thus its quick ratio must be 1 or more.
 2) Asset Management Ratios (የ ሃብት አጠቃቀም መለኪያ ሬሾዎች )…
163

a) Inventory Turnover (ITO):

 It measures the average number time per year that an entity
sells or turns over its inventory
 High inventory turnover ratios are taken as a sign of efficient
management of inventory where as low inventory turnover is
a sign of slow moving or obsolete items in inventory.
 Generally, higher ITO is desirable.
 2) Asset Management Ratios (የ ሃብት አጠቃቀም መለኪያ ሬሾዎች )…
164

b) Receivable Turn over (RTO) :

It tells us the number of times A/R have been turned
over/ turned into cash during the year.
Generally, RTO greater than or equal to the standard is
desirable.
 2) Asset Management Ratios (የ ሃብት አጠቃቀም መለኪያ ሬሾዎች )…
165

c) Average Collection Period (ACP):

It is called Receivable Turn Over in Days (RTD) or Days
Sales Outstanding.
It tells us the average number of days that receivables are
outstanding before being collected.
Generally, a lower ACP is desirable.
 2) Asset Management Ratios (የ ሃብት አጠቃቀም መለኪያ ሬሾዎች )…
166

d)Fixed Assets Turnover (FATO)

It is used to measure how effectively the firm uses its
plant assets in generating sales.
Generally, FATO greater than or equal to the standard is
desirable.
 2) Asset Management Ratios (የ ሃብት አጠቃቀም መለኪያ ሬሾዎች )…
167

f) Total Assets turn over (TATO)

It shows the firm’s ability in generating sales from all
financial resources committed to total assets.
Generally, TATO greater than or equal to the standard is
desirable.
 3) Debt Management Ratios (የ ብድር አጠቃቀም መለኪያ ሬሾዎች)
168
…

a) Debt (D/A) Ratio :

 It measures the extent to which the firm is using borrowed
money.
 Generally, creditors would like a lower debt ratio.
169
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

a) Gross Profit Margin (GPM)Ratio :

 It reflects management’s effectiveness in pricing policy,
generating sales and production efficiency.
 Generally, gross profit margin ratio greater than or equal
to the standard is desirable.
170
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

b) Net Profit Margin (NPM) Ratio :

 It indicates management’s efficiency in manufacturing, administering,
selling, financing, pricing and tax management.
 Generally, net profit margin ratio greater than or equal to the
standard is desirable.
171
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

c) Return on Investment (ROI) :

 It is also called Return on Assets (ROA) .
 It measures the amount of profit generated on
investments in assets .
 Generally, a higher ROA is desirable.
172
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

d) Return of Equity (ROE) :

 It is also called the Return on Stockholders’ Equity/ Return on Net
Worth.
 It measures the return earned by stockholders’ on their investment
and serves as an indicator of management performance.
 Generally, a higher ROE is desirable
173
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

e) Earnings per Share (EPS):

 It simply shows the profitability of the firm on a
per share basis during the reporting period.
 Generally, higher EPS is desirable.
174
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

f) Dividend per Share (DPS) :

 It represents the Birr amount of cash dividends a
corporation paid on each share of its common
stock outstanding during the reporting period.
 Generally, higher DPS is desirable.
175
4) Profitability Ratios (የ ትርፋማነት መለኪያ ሬሾዎች)

g) Payout (P/O) Ratio :

 It shows the percentage of earnings paid to
stockholders.
 That is, the payout ratio expresses the cash dividend paid
per share as a percentage of EPS.
 Generally, higher P/O is desirable.
 II) Horizontal Analysis ( የ አግድም ትንተና )…
176

 Horizontal
Horizontal analysis
analysis ––

 ItIt is is used
used in in the
the review
review ofof aa company's
company's financial
financial
performance
performance over over multiple
multiple periods.
periods.

 ItIt allows
allows users
users to to easily
easily spot
spot trends
trends and
and growth
growth
patterns
patterns over over aa number
number ofof accounting
accounting periods
periods

 ItIt is
is used
used toto compare
compare historical
historical data,
data, such
such as
as ratios,
ratios,
or
or line
line items,
items, over
over aa number
number of of accounting
accounting periods.
periods.

 የተለያዩ
የተለያዩ የሂሳብ የሂሳብ መግለጫዎችን
መግለጫዎችን በመጠቀምበመጠቀም ከግዜ ከግዜ ወደ
ወደ ግዜ
ግዜ ያለዉን
ያለዉን
ለውጥ
ለውጥ ማየት ማየት
 II) Horizontal Analysis ( የ አግድም ትንተና )…
177

ይሞክሩት !
በተሰጠው የሁለት ዓመት ዳታ መሰረት
የድርጅቱ የኣግድም ትንተና ከውን !
178
 II) Horizontal Analysis ( የ አግድም ትንተና )…
179

 የብር መጠን ለውጥ ለማስላት 2020 ከ 2019 አንጻር ለማስላት፡

ለውጥ =
–
 II) Horizontal Analysis ( የ አግድም ትንተና )…
180

ለውጡን በመቶኛ ለማስላት

=
 II) Horizontal Analysis ( የ አግድም ትንተና )…
181

$12,000 – $23,500 = $(11,500)

 II) Horizontal Analysis ( የ አግድም ትንተና )…
182

($11,500 ÷ $23,500) × 100% = 48.9%

 II) Horizontal Analysis ( የ አግድም ትንተና )…
183
 II) Horizontal Analysis ( የ አግድም ትንተና )…
184
 II) Horizontal Analysis ( የ አግድም ትንተና )…
185
ABC CORPORATION
Comparative Balance Sheets
December 31, 2020 and 2019
Increase (Decrease)
2020 2019 Amount %
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 44,000 $ 23,000 52.3
Notes payable 3,000 6,000 (3,000) (50.0)
Total current liabilities 70,000 50,000 20,000 40.0
Long-term liabilities:
Bonds payable, 8% 75,000 80,000 (5,000) (6.3)
Total liabilities 145,000 130,000 15,000 11.5
Stockholders' equity:
Preferred stock 20,000 20,000 - 0.0
Common stock 60,000 60,000 - 0.0
Additional paid-in capital 10,000 10,000 - 0.0
Total paid-in capital 90,000 90,000 - 0.0
Retained earnings 80,000 69,700 10,300 14.8
Total stockholders' equity 170,000 159,700 10,300 6.4
Total liabilities and stockholders' equity $ 315,000 $ 289,700 $ 25,300 8.7
 II) Horizontal Analysis ( የ አግድም ትንተና )…
186
 II) Horizontal Analysis ( የ አግድም ትንተና )…
187
ABC CORPORATION
Comparative Income Statements
For the Years Ended December 31, 2020 and 2019
Increase (Decrease)
20120 2019 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 II) Horizontal Analysis ( የ አግድም ትንተና )…
188
ABC CORPORATION
Comparative Income Statements
For the Years Ended December 31, 2020 and 2019
Increase (Decrease)
2020 2019 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Sales increased by 8.3% while net income decreased by 21.9%.
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 II) Horizontal Analysis ( የ አግድም ትንተና )…
189
ABC CORPORATION
Comparative Income Statements
For the Years Ended December 31, 2020 and 2019
Increase (Decrease)
2020 2019 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross
There weremargin 160,000
increases in both cost of goods sold (14.3%) 165,000
and operating expenses (5,000) (3.0)
Operating
(2.1%). Theseexpenses 128,600
increased costs more than offset the increase 126,000
in sales, yielding an 2,600 2.1
Net operating
overall decrease inincome
net income. 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 3) Vertical Analysis ( ሰያፍ ትንተና ) …
190

Vertical Analysis –– ItIt is

Vertical Analysis is aa method
method ofof financial
financial analysis
analysis inin
which
which eacheach lineline item
item isis listed
listed as
as aa percentage
percentage of of aa base
base
figure
figure within
within the
the statement.
statement.
 Thus,
Thus, line
line items
items on on an
an income
income statement
statement can can be
be stated
stated as
as aa
percentage
percentage of of sales/revenue,
sales/revenue, whilewhile line
line items
items on
on aa balance
balance
sheet
sheet cancan be be stated
stated as
as aa percentage
percentage of of total
total assets
assets ..
 የአንድ
የአንድንን የሂሳብየሂሳብ መግለጫመግለጫ ኢለመንቶችን
ኢለመንቶችን እርስ እርስ በራስ
በራስ በማወዳደር
በማወዳደር ያሉበትን
ያሉበትን ሁነታ
ሁነታ
ማሰስ
ማሰስ ፡፡፡፡ ለምሳሌ
ለምሳሌ፡፡ የአመቱየአመቱ የተጣራ
የተጣራ ትርፍ ትርፍ ከከ ኣጠቃላይ
ኣጠቃላይ ሽያጭ ሽያጭ ኣንጻር
ኣንጻር
191
3) Vertical Analysis ( ሰያፍ ትንተና ) …

$82,000 ÷ $483,000 = 17% rounded

$30,000 ÷ $387,000 = 8% rounded
192
3) Vertical Analysis ( ሰያፍ ትንተና ) …
193
3) Vertical Analysis ( ሰያፍ ትንተና ) …

$76,000 ÷ $483,000 = 16% rounded

 ማጠቃለያ
194
1. የኣንድ ቢዝነስ ህልውና የጀርባ ኣጥንት ፋይናንስ ነው፡፡
2. ይህ ፋይናንስ በቀጣይነት ለማግኘት ኣግባብነት ያለው ኣካውንቲንግ ሲስተም
መዘርጋት ግዴታ ነው፡፡
3. ይህ ሲሆን ቢዝነሱ ትርፉና ኪሳራዉን በኣግባቡ እየመዘገበ እንዲሁም ያለበትን
ፖዚሽን በኣግባቡ መመዝገብ እና ኣስፈላጊውን እርምት በግዜ እንዲወስድ ይረዳዋል፡፡
4. ከዚህም በተጨማሪ እዳዉን ለመክፈልም በቂ ኣቅም ይኖረዋል፡፡
5. ኣበዳሪዎችም በቀጣይነት ፋይናንስ ለማድረግ ዝግጁ ይሆናሉ፡፡
195

የሥልጠናዉ መጨረሻ
አመሰግናለሁ!