What is Accounting?

System

used to keep track of finances Record of money that comes and goes out Follows strict rules Financial Accounting
recording and analyzing
Managerial

Accounting

decision making

2.1

Fundamental Accounting Equation

Assets

= Liabilities + Equity

Assets

Things of value you own Liabilities Things that you owe to others Equity What you have left/are worth after you use all of your assets to pay off your liabilities Assets Liabilities = Equity/Net Worth
2.1

2.1

Assets
List

of things of values that you own Left side of balance sheet Listed in order of liquidity. Two categories Current Assets: turn to cash in 1 year Fixed Assets: needed to run the business Total is double underlined

2.1

Accounts Receivable
Money

that is owed TO you by customers Billed but not yet received Usually give 30 days to pay therefore current asset Detailed records are kept Usually only the total appears

2.1

Liabilities
Lists

of things that you owe to others Right side of balance sheet Two categories Current liabilities: pay within a year Long term liabilities: more than a year Totalled but not underlined Needs to be added to Equity

2.1

Accounts Payable
Money

that you have to pay to suppliers/creditors Usually have 30 days to pay

therefore Current Liability
Detailed

records are kept Usually only total appears on the balance sheet

2.1

Equity
Also

called Net Worth or Owners Equity Money owner invested in company Plus any profits or Minus any losses Minus money owner takes out for personal use called Drawings Whatever is left over after all the liabilities are subtracted from the assets
Assets - Liabilities = Equity
Shows

what the company is worth

2.1

Homework
Text

pages 17-18
pages 4 & 5

Questions 1-6 Exercises 1-6

Workbook

2.1

Financial Statements
Formal

Documents Standard format Regular basis At least yearly (fiscal year) Required by law for tax purposes Key information about financial position Balance Sheet Income Statement

2.2

Using Financial Statements

Provides
Used

accurate picture of how company is doing

by

Business owners/managers Investors Lenders Government

2.2

Balance Sheet
Statement

of financial position Snap shot in time Contains fundamental accounting equation

Assets = Liabilities + Equity
Always

has three lines at the top

Who What When

2.2

Who What When

2.2

Balance Sheet
List

all assets on the

left Single underline Add up total Assets Double underline TOTAL

List all liabilities on right Single underline Add up total Liabilities Calculate Equity Assets-Liabilities Single underline Add up Liabilities and

Equity Double Underline TOTAL

Both TOTALS should be on the same line.

2.2

Dollar Signs?
Each column starts with a dollar sign A line restarts the column

2.2

$
Single line Single line

Double line 2.2

Double line

Using Column Paper

2.2

Assignment
Text

Page 24-25 Exercise #1 (wb6)

Have me check when done FOLLOW TEXTBOOK EXAMPLES

Homework

Review Questions 1-17 Text page 25 Exercise #2 (wb7)

2.2

Claims against Assets

Liquidate

2.3

2.3

Homework
Page 27-28 (wb8-9) Exercises 1 & 2

2.3

GAAPs
1.

Generally Accepted Accounting Principles Business Entity

Keep business and personal separate

2.

Going Concern (Continuing Concern)

Assume business continues as usual

3.

Conservatism

Fair and reasonable evaluations and estimates

2.4

Homework
Text

pg 30-31 (wb10) Review Questions 1-6 Exercise #1 Separate business from personal Cases for further thought 1-6

2.4

Computers and Accounting

Makes

accounting quicker and easier Eliminates arithmetic errors Dedicated accounting programs
Cant put the accounting equation out of balance Provide immediate financial statements Specialize to meet your business needs

2.5

Computers and Accounting

Does

not eliminate all errors Could put information in wrong account Need to understand the basics of accounting
Fundamental accounting equation A/R owes you money A/P you owe money to

2.5

Assignment
With

a partner use a spreadsheet to complete page 25 Exercise #3

Homework

Chapter 2 Review

Page 38-39 Exercises 1-5

2.5