Accounting Introduction

The planning, recording, analyzing and interpreting of financial information. ◦ A planned process for providing financial

information that will be useful in management is called an accounting system.

◦ Organized summaries of a businesses’ financial activities are called accounting records.

◦ Used by most individuals in everyday life. (Submit tax returns, plan personal spending, etc.)

What is Accounting?

Inaccurate accounting records often contribute to business failure and bankruptcy.

Failure to understand accounting info. can result in poor business decisions for both businesses and nonprofit organizations.

Ex: Celebrities◦ How celebrities spend their money◦ 9 Celebrities caught in DEBT◦ Celebrities with the Biggest Money Problems◦ Top 10 Terrible Financial Choices in the Music Industry◦ 10 Celebrities who Lost Big Financially

Poor accounting

Accountants ◦ Plan, summarize, analyze and interpret

information. ◦ Prepare various accounting reports and assist

owners and managers in making financial decisions.

◦ Supervise the work of other accounting personnel.◦ Check the accuracy of financial statements.

◦ Some work as members of accounting firms that sell accounting services to the general public.

Job Opportunities

Controller ◦Accountant needed to maintain accounting

systems and supervise accounting personnel.

◦5 or more years of experience◦Professional certification◦Computer skills

Job Opportunities

Accountants ◦Needed by local businesses.◦Supervise all functions of accounting.◦Good interpersonal skills◦Good communications skills

Job Opportunities

Bookkeeper◦Do general accounting work plus summarize

and analyze accounting information.◦May help small business owners and

managers make decisions.◦Work without supervision.◦Experience in general ledger and payroll.◦Experience in supervising accounting clerks.◦Electronic spreadsheet and word processing

knowledge

Job Opportunities

Accounting Clerk◦Records, sorts, and files accounting

information.◦Titles: accounting clerks and payroll clerks◦Do specific accounting activities

Job Opportunities

Need to effectively communicate to people responsible for making business decisions.

Important because accountants often communicate to people who don’t know accounting.

Phone conversations, one-on-one meetings, group meetings. (Oral Communication)

Memorandums, letters, reports (Written Communication)

**Communication Skills**

Ethics – principles of right and wrong that guide an individual in making decisions.

Business Ethics – using your personal ethics to make business decisions.

Business Ethics

Excessive emphasis on profits. Misplaced business loyalty. Personal advancement. Expectation of not getting caught. Unethical business environment. Unwillingness to take a stand.

Why do people act unethically?

Proprietorship: a business owned by one person.◦ Don’t mix business records with personal records.

Service Business: performs an activity for a fee.◦ Examples????

Painters Plumbers Accounting firms Hospitals Law firms

Ch.2 -- Starting A Proprietorship

ASSETS: anything of value that is owned.

EQUITIES: the financial rights to a business.◦ Liabilities: amounts owed to others.◦ Owner’s Equity: the amount remaining after the

value of all liabilities is subtracted from the value of all assets.

Accounting Equation: Assets = Liabilities + Owner’s Equity◦ MUST ALWAYS BE IN BALANCE

Accounting Equation

Transaction: a business activity that changes assets, liabilities, or owner’s equity.

When you start a business, the accounting equation looks like…

Assets = Liabilities + Owner’s Equity 0 = 0 + 0

How business activities change the accounting equation.

Assets = Liabilities + Owner’s Equity 0 = 0 + 0Transaction #1: Received cash from owner as an

investment, $10,000.

Assets = Liabilities + Owner’s Equity

Cash = Ben Furman, CapitalBeg. Balance 0 0Trans.#1 +10,000 +10,000

(investment)New Balance 10,000 10,000

Example Transactions

Assets = Liabilities + Owner’s Equity

Transaction #2: Paid cash for supplies, $1,577.

Cash + Supplies = Ben Furman, Capital

Beg. Balance 0 0 0Trans#1 +10,000 +10,000New Balance 10,000 10,000

Trans#2 - 1,577 +1,577New Balance 8,423 + 1,577

10,000

Total left side: 8,423+1,577=10,000Total Right Side: 10,000

Assets = Liabilities + Owner’s Equity

Transaction #3: Paid cash for insurance, $1,200.

Cash + Supplies + Prepaid Insurance = BF, Capital

Beg. Balance 0 0 0Trans#1 +10,000 +10,000 (investment)New Balance 10,000 10,000

Trans#2 - 1,577 +1,577New Balance 8,423 + 1,577 = 10,000

Trans#3 - 1,200 +1,200New Balance 7,223 1,577 1,200 =

10,000

Total left side: 8,423+1,577+1,200=10,000 Total Right Side: 10,000

Assets = Liabilities + Owner’s Equity

Transaction #4: Bought supplies on account from BCS Supplies, $2,720.

Cash + Supplies + Prepaid Insurance = BF, Capital

Trans#3 - 1,200 +1,200New Bal. 7,223 1,577 1,200 =

10,000

C + S + PI = BCS + CapitalTrans#4 2,720 +2,720 New Bal. 7,223 4,297 1,200 = 2,720 + 10,000

Total left side: 7,223 + 4,297 + 1,200 = 12,720Total Right Side: 10,000 + 2,720 = 12,720

Assets = Liabilities + Owner’s Equity

Transaction #5: Paid cash on account to BCS Supplies, $1,360.

Cash + Supp. + Pre. Ins. = BCS + BF, Capital

Balances 7,223 4,297 1,200 = 2,720 + 10,000Trans.#5 -1,360 - 1,360New Balance 5,863 4,297 1,200 = 1,360 + 10,000

Total left side: 5,863 + 4,297 + 1,200 = 11,360Total Right Side: 10,000 + 1,360 = 11,360

Balance Sheet: a financial statement that reports assets, liabilities, and owner’s equity on a specific date.

ASSETS are on the left side of the balance sheet.

LIABILITIES and OWNER’S EQUITY are on the right side of the balance sheet.

BALANCE SHEET

Write the heading.◦ Name of the business◦ Name of the report◦ Date of the report

Prepare the asset section.◦ Center the word Assets◦ Under the heading, list each account to the left◦ List the balances

Preparing a Balance Sheet

Prepare the liabilities section.◦Center the word Liabilities◦Under the heading, list each account to the

left◦List the balances

Prepare the owner’s equity section.◦Center the words Owner’s Equity◦Under the heading, write the account title

(Capital)◦Write the account balance

Preparing a Balance Sheet

Determine if the balance sheet is in balance.◦ Add all the assets amounts◦ Add liabilities and owner’s equity amounts◦ (If it doesn’t equal, find your errors.)

Complete the balance sheet.◦ Rule a single line across both amount columns.◦ Write the totals.◦ Rule double lines.

Preparing a Balance Sheet