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Acctg Basics

Accounting involves systematically recording, reporting, and analyzing financial transactions of a business. It identifies, records, and communicates financial information to decision makers such as owners, creditors, and tax authorities. The key financial reports produced by accounting are the balance sheet, income statement, statement of cash flows, and statement of owner's equity. The balance sheet represents the financial position of a business at a point in time, the income statement summarizes revenues and expenses, the statement of cash flows tracks cash inflows and outflows, and the statement of owner's equity explains changes in the owners' equity over time.

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84 views41 pages

Acctg Basics

Accounting involves systematically recording, reporting, and analyzing financial transactions of a business. It identifies, records, and communicates financial information to decision makers such as owners, creditors, and tax authorities. The key financial reports produced by accounting are the balance sheet, income statement, statement of cash flows, and statement of owner's equity. The balance sheet represents the financial position of a business at a point in time, the income statement summarizes revenues and expenses, the statement of cash flows tracks cash inflows and outflows, and the statement of owner's equity explains changes in the owners' equity over time.

Uploaded by

Lara Lewis Achilles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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What is accounting?

Accounting
The systematic recording,
reporting, and analysis of
financial transactions of a
business.

Accounting
It is the language of the
business

Accounting
Identifying
Recording
Communicating
Financial information to decision makers

Financial Reports
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Owner Equity

Balance Sheet
Represents a financial situation
at a single point in time
A = L + E

Income Statement
Summary of revenue and expenses
Revenue Expenses = Net income

Statement of Cash Flows


Cash received and cash paid during
a period.
Cash beginning balance
+ Cash received
- Cash paid__________
Cash ending balance

Statement of Owner
Equity
Explains the change in owners
equity between two balances sheets
Changes due to :
Net income
Additional investment
Withdrawal

Decision Makers

10

Individuals
Businesses
Investors
Creditors
Taxing Authorities

Types of Business Organizations


Proprietorships
Partnerships
Corporations

11

GAAP
Generally Accepted Accounting Principles
Accounting guidelines that govern how
accountants measure, process, and
communicate financial information

12

GAAP
Primary objective of financial accounting
provide information that is useful for
making investment and lending decisions

13

Entity Concept
Accounting Entity organization that
stands apart as a separate economic unit

14

Reliability (Objectivity) Principle


Accounting information is based on the
most reliable data available
Verifiable
Free from bias
Individuals would arrive at similar conclusions
using same data

15

Cost Principle
Acquired assets and services should be
recorded at their actual cost (historical cost)

16

Going Concern Concept


Assumes that the entity will remain in
operation for the foreseeable future

17

Stable-Monetary-Unit Concept
Assumes that the pesos purchasing power
is stable

18

Assets
Economic resources, expected to benefit the
business in the future

19

Cash
Accounts receivable
Merchandise inventory
Furniture
Land

Claims to the Assets


Liabilities economic obligations payable
to an individual or organization outside the
business
Accounts payable
Notes payable
Salary payable

20

Claims to the Assets


Owners Equity (capital) claim of
business owner to the assets of the business

21

R, Capital
C, Capital
O, Capital
A, Capital

The Accounting Equation


Assets

Economic
Resources

22

= Liabilities + Owners Equity

Claims to
Economic
Resources

Transactions that Affect


Owners Equity

OWNERS
EQUITY
INCREASES

OWNERS EQUITY
DECREASES
Owner
Withdrawals

Owner
Investments
Owners Equity

Revenues
23

Expenses

Revenues
Amounts earned by delivering goods or
services to customers

24

Sales revenue
Service revenue
Interest revenue
Dividend revenue

Expenses
Decrease in owners equity that occurs from
using assets or increasing liabilities in the course
of delivering goods or services to customers
Salary expense
Rent expense
Utilities expense
Interest expense
Cost of goods sold
25

Analyzing business
transactions

Transaction
An event that affects the
financial position of a particular
entity and can be recorded
reliably

Double-entry system
Every transaction affects at
least two accounts

Account
An account is an individual
accounting record of increases
and decreases in a specific
asset, liability, or owners
equity item

Accrual basis accounting


Revenue is recorded when earned
regardless of when cash is received.
Expenses are recorded when incurred
regardless of when cash is paid.

How to analyze transactions?


Ask the three questions.
1. What are the accounts affected?
2.What type of account?
3.Did the accounts increase or decrease?

Analyze this:
July 6: Lange invested $45,000 in the business by
opening a bank account in the name of M. Lange, M.D.

What
Does the
accounts
account
areincrease
involved?
or decrease?

(1) Cash (asset)


(2) Owners Equity (equity)

32

Analyze this:
July 9: Paid $35,000 cash for land
DoesWhat
the account
increase
or decrease?
accounts
are involved?

(1) Cash (asset)


(2) Land (asset)

33

Analyze this:
July 12: Purchased medical supplies
for $2,000 on account
DoesWhat
the account
increase
or decrease?
accounts
are involved?

(1) Medical Supplies (asset)


(2) Accounts Payable (liability)

34

Analyze This:

July 15-31: During the rest of the month, Lange treated


patients and earned service revenue of $7,000,
receiving cash

DoesWhat
the account
accounts
increase
are involved?
or decrease?

(1) Cash (asset)


(2) Revenues (equity)

35

When the owner


completes work,
her interest in
the assets
increases

Analyze This:
July 15-31: Paid cash expenses
Does the
account
increase
or decrease?
What
accounts
are involved?
(1) Cash (asset)
(2) Expense (equity)
When an expense is
incurred, owners
equity decreases
36

Analyze This:
July 28: Sold supplies to another
physician for the cost of those supplies
Does the
account
increase
or decrease?
What
accounts
are involved?
(1) Cash (asset)
(2) Medical Supplies (asset)

37

Analyze This:
July 31: Paid $1,500 on account

Does the
account
increase
or decrease?
What
accounts
are involved?
(1) Cash (asset)
(2) Accounts Payable (liability)

38

Account
An account is an individual
accounting record of increases
and decreases in a specific
asset, liability, or owners
equity item

Debits and Credits


The term debit indicates the
left side of an account, and
credit indicates the right side.

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