Introduction to Basic Accounting Concepts

Objectives
2

Concepts and principles of accounting Balance Sheet & Income statement equations Primary accounts for assets, liabilities, revenues and

expenses Use of t-accounts to practice posting of transactions Define double-entry accounting

The Income Statement

3

Know (memorize!) this formula

Rev-COGS = GP-O/A Exp= NP Revenue (Rev): what is generated by sale of prescriptions or other merchandise. Can also be service fees for patient care Cost of Goods Sold (COGS): reflective of purchases in the accounting period and beginning and ending inventories Operating/Admin expenses (O/A Exp)give some examples

What does GP mean. How about NP (net profit)

Introduction to Bookkeeping
4

What is a Journal?

What is a ledger?

The Journal
5

Journal Entry-Inflow of Cash from Owner

6

source: unknown

Journal Entry-Paid Cash for Supplies

7

Source: unknown

The Account-Starting to Learn AccountingTraditional Teaching

8

For teaching purposes, we portray accounts in simple

format called T-accounts The left side of the T is called the DEBIT side The right side of the T is called the CREDIT side Depending on the account, a debit or credit can signify an increase or decrease in the value of that account NOTE: Do not fall into this trap! Generally in business, debits enhance the business-credits take away from the business. Debit DOES NOT MEAN POSITIVE

Tricks of the Trade-Focus on Debit SideMEMORIZE!!

9

ASSETS

= LIABILITIES

+OWNERS EQUITY

Debit

Credit

Debit Credit

Debit

Credit

Capital are credits Withdrawals.. are debits Revenues (Sales) are credits Expenses are debits

Tricks of the Trade-focus on Debits

10

How do we record an Asset?

How do we record Liabilities?

Lets do an example

Receive $300 in cash from sales

Recording of Cash-Journal Account

11

CASH Debit (Db) 300 Credit (Cr.)

Note: I am not showing the double entry bookkeeping

Recording of Sales- Journal entry

12

Sales Debit (Db) Credit (Cr.)

300

Note: see last slide for double entry

Debits & Credits for Owners Equity.

13

Temporary subdivisions of retained earnings

(nominal accounts). The following is often confused!

Revenue (Sales)

Increases in revenue are recorded as credits? Why Value of the transaction is favorable to owner (increases the dollar amount of equity owed to the owner Increases in expenses are recorded as debits? Why Transaction causes money to flow out of the business thus reducing the value of equity owed to the owner

Expenses

Revenue & Expenses affects Equity

14

ASSETS

= LIABILITIES

+OWNERS EQUITY

Debit

Credit

Debit Credit

Debit

Credit

Capital are credits Withdrawals.. are debits Revenues (Sales) are credits Expenses are debits