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Accounting
INTRODUCTION
PRIOR KNOWLEDGE
WHAT DO ACCOUNTANTS DO?
WHO DO YOU KNOW IN ACCOUNTING?
WHAT IS ACCOUNTING?
DEFINITION
Must be up to date & accurate
System of recording business transactions and analyzing, verifying, & reporting the results
GAAP
GAAP
Generally Accepted Accounting Principles
Must meet GAAP standards during an audit
Rules, standards, & practices business follow to record financial information
Audit =
review of
financial statement and accounting practices used to produce them
GAAP EXAMPLE
FISCAL PERIOD
Most businesses use 1 year [January 1st to December 31st]
Period of time for which a business summarizes accounting information & prepares financial statements
BASICS
REVENUE VS. EXPENSES
REVENUE
Needed to pay debts, provide investor return, & finance future growth
Earnings that a business receives for the goods & services it sells
EXPENSES
Costs involved in operating a business
INCOME/LOSS
INCOME
Income/Loss = revenue - expenses
ACCOUNTING TYPES
CASH BASIS
Revenue not recorded until cash is received
Expenses not recorded until cash is paid
EXAMPLE
CASH BASIS EXAMPLE...
Business sells $600 of computer equipment to a customer, customer does not have to pay for 30 days, business records $600 when they receive it
ACCRUAL BASIS
Revenue & expenses recorded when they occur
Used by most businesses
EXAMPLE
ACCRUAL BASIS EXAMPLE...
Sale of $600 computer is recorded when the sales happens regardless of when payment is received
TRANSACTIONS
TRANSACTION
Any activity that effects a business
CASH TRANSACTION
Cash is received at time of sale
SALE ON ACCOUNT
Sales invoice is sent to customer
SALE ON ACCOUNT
Customer account = accounts receivable
Cash for sale is received at a later date
PURCHASE ON ACCOUNT
Purchase order is sent to vendor
Vendor account = accounts payable
Merchandise purchased will be paid to vendor at a later date
REVENUE & EXPENSES
Both considered transactions
SOURCE DOCUMENTS
Receipts
SOURCE DOCUMENTS
Purchase Order
Invoice
Records that prove a transaction occurred
DOUBLE ENTRY ACCOUNTING
Method of recording transactions
Every transaction effects 2 accounts
ACCOUNTS
ACCOUNTS
Individual record that summarizes info. for a single category
Supplies
Cash
Rent Expense
Owner's Equity
Inventory
Accounts Receivable
Cost Of Goods Sold
Accounts Payable
ACCOUNTS
Every transaction effects 2 accounts
Ex. Paid $30 cash for office supplies
SUPPLIES
CASH
T-ACCOUNTS
Every account must be made into a T-Account
(Name of account)
DEBIT
CREDIT
DEBITS & CREDITS
Different accounts have different increasing/decreasing sides
Increase with debit; decrease with credit
Decrease with debit; increase with credit
CREDIT
DEBIT
Gains, Income, Revenue, Liabilities, Owner's Equity
Dividends, Expenses, Assets, Losses
ACCOUNT CATEGORIZATION
Accounts categorized as...
Liabilities
Owner's Equity
Assets
Net Worth
Property or items of value that are owned
Debts owed to others
Try And Guess!
ACCOUNTING EQUATION
ACCOUNTING EQUATION
LIABILITIES
OWNER'S EQUITY
ASSETS
ACCOUNTING RECORDS
ACCOUNTING RECORDS
ACCOUNTING CYCLE
Must do all steps in order
Sequence of steps businesses follow to record, summarize, and report financial info.
CHART OF ACCOUNTS
list of all accounts a business deals with
EXAMPLE
Multiple accounts are listed, categorized, & given account #'s
GENERAL JOURNAL
GENERAL JOURNAL
Form used to record business transactions in chronological order
For each transaction show:
1. Account affected
2. Date occurred
3. Credit/debit
4. Amount transaction was for
GENERAL LEDGER
GENERAL LEDGER
Group of accounts
Made after you complete your general journal
Posting = transferring info. from a journal to a ledger
Each account can also be formatted like this...
BALANCE SHEET
BALANCE SHEET
Reports assets, liabilities, & owner's equity
Double check:
assets = liabilities + owner’s equity
Gives a snap shot of the business’s condition for a certain date
CASH FLOW STATEMENT
CASH FLOW STATEMENT
How cash moves into & out of a business
Positive cash flow = receiving more cash than spending
Negative cash flow = spending more cash than receiving
INCOME STATEMENT
INCOME STATEMENT
Income/Loss =
Revenues - Expenses
Shows business income or loss in a certain time period
REVIEW OF ORDER
ACCOUNTING CYCLE
Review Of Order
Chart Of Accounts
General Ledger
Cash-Flow Statement
Balance Sheet
Income Statement
General Journal
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ACCOUNTANT TYPES
CPA
Certified Public Accountant
Must pass various exams & need 150 college credits
Considered to be accounting experts
FORENSIC ACCOUNTANT
FORENSIC
Brought in to uncover fraud, errors, & omissions in records
Accounting detectives
May be needed in a court of law
AUDITOR
Brought in to check financial records
Make sure all records follow GAAP
COST ACCOUNTING
COST
Look for ways to save money
Analyze all expenses & transactions
Need a CCA accreditation (certified cost accountant)
TAX ACCOUNTANT
TAX
Specialize in doing taxes & tax returns
Can be for businesses or individuals