Subject: Grade 12 Accounting Notes

Unit: Financial Accounting Basics

1. Introduction to Financial Accounting:

Purpose of Accounting:

Recording, summarizing, and analyzing financial transactions.

Users of Financial Statements:

Investors, creditors, management, government agencies.

2. The Accounting Equation:

Assets = Liabilities + Equity:

The fundamental equation representing the balance between what a company owns
(assets) and owes (liabilities), with the remaining value being the owners' equity.
3. Double-Entry Accounting:

Debits and Credits:

Every transaction involves at least two accounts, and each transaction affects the
accounting equation through debits and credits.
Types of Accounts:

Assets, liabilities, equity, revenue, and expenses.

Unit: Financial Statements

1. Income Statement:

Purpose:

Reports the company's revenues and expenses over a period of time, resulting in net
income or net loss.
Format:

Revenue - Expenses = Net Income (or Net Loss).

2. Statement of Changes in Equity:

Purpose:

Explains the changes in equity from the beginning to the end of an accounting
period.
Components:

Beginning equity + Additional investments - Drawings + Net Income (or - Net Loss) =
Ending equity.
3. Balance Sheet:

Purpose:

Provides a snapshot of a company's financial position at a specific point in time.

Format:

Assets = Liabilities + Equity.

4. Cash Flow Statement:

Purpose:
Shows how changes in balance sheet accounts and income affect cash and cash
equivalents.
Components:

Operating activities, investing activities, and financing activities.

Unit: Financial Analysis

1. Financial Ratios:

Liquidity Ratios:

Measures a company's ability to meet its short-term obligations.

Profitability Ratios:

Measures a company's ability to generate profit.

Solvency Ratios:

Measures a company's ability to meet long-term obligations.

2. Vertical and Horizontal Analysis:

Vertical Analysis:

Expresses each item on the financial statement as a percentage of another item.

Horizontal Analysis:

Compares financial data over multiple periods to identify trends.

3. Interpretation of Financial Statements:

Common-Size Statements:

Expresses each line item as a percentage of a base amount.

Trend Analysis:

Examines how financial performance changes over time.

Unit: Managerial Accounting

1. Cost Concepts:

Fixed and Variable Costs:

Fixed costs remain constant, while variable costs change with production levels.
Direct and Indirect Costs:

Direct costs are traceable to a specific product or service, while indirect costs
cannot be easily traced.
2. Budgeting:

Purpose:

Planning and controlling financial activities by setting targets.

Components:

Operating budgets, financial budgets, and master budgets.

3. Cost-Volume-Profit (CVP) Analysis:

Break-Even Point:

The level of sales at which total revenues equal total costs.

Contribution Margin:
The amount of revenue remaining after deducting variable costs.