1. Accounting 11

2. Why study Accounting? Top 10 Reasons why …
Top 10 Reasons why …

3. Unit 1: Financial Position

4. The Purpose of Accounting
to provide financial information for decision making.
Every accounting system must:
Record the day-to-day financial activities of the business
Summarize and report information in financial statements for analysis and decision making.

5. Unit 1: Financial Position
Purpose: helps determine whether you should grant a loan or not
Total value of Items owned -
Total owed to Creditors
Personal Net worth =
Creditors – are people or businesses that extended credit when goods and services were
purchased or who loaned money used to purchase possessions.
Personal Net Worth – is the difference between the cost of items owned and the debts
owed.

6. Calculating Financial Position
Items owned by Lara Chari
Debts owed to creditors by Lara Chari
Cash
Government Bonds
Clothing
Furniture
Equipment
Automobile
$ 4 000
5 000
3 000
15 000
10 000
20 000
$57 000
Credit Card Debt
Bank Loan
$ 2 000
10 000
$12 000
Total value of Items owned -
Total owed to Creditors
Personal Net worth = -
$57 000 =
$12 000
$45 000

7. Accounting Terminology
Assets: are items of value owned by a
business or person
Liabilities: are the debts of a business or a
person.
Personal equity: is a person’s net worth.
(a positive net worth is good…the greater the value, the more likely you will get a loan)

8. Assets items of value owned by a person or business
Something a person or business owns.
Categories:
Cash - currency, cheques, money orders, bank deposits.
Accounts Receivable - total amount due from customers.
Government Bonds
Furniture
Office Equipment
Automobiles - cars, trucks
Land
Buildings

9. How does a business acquire these assets?
Borrowing
Investment by the owner(s)
Creditor - a person/business to whom money or goods is owed.
Debtor - a person/business who owes money or goods.

10. Borrowing = Debt = Liabilities
Liabilities - the debts of a business or person.
- something a business or person owes.
Categories:
Loans
Accounts Payable - amounts owing to creditors for purchases of goods and services.
Mortgage - a long-term debt where the building or land is used as collateral for the debt.

11. Investment by the owner(s) = Owner’s Equity
Owner’s Equity - claim of the owner against the asset of the business.
Personal Equity (Net Worth) - the difference between the cost of items owned and debts owed.

12. Questions 1-4 Page (12-13)
Apply your knowledge

13. Balance Sheet Equation
- The financial position of a person or a business can be stated in the form of a balance sheet equation: (basis for much of the accounting theory you will learn)
Assets =
Liabilities +
Owner’s Equity A = L + OE
Example:
$57 000 =
$12 000 +
$45 000 =
$57 000
$57 000

14. Balance Sheet – Template in Workbook
See Figure 1.1 – Page 4 – Personal balance sheet

15. Balance Sheet - Excel Template

16. Business Entity Principle
Requires that each business be considered a separate entity, and that the financial data for the business be kept separate from the owner’s personal financial data.

17. Company Balance Sheet = +
is a formal report or statement that shows the financial position of the business at a certain date.
Left side must equal the Right side
See Figure 1.2 A = L + OE

18. More Accounting Terminology
Accounts Receivable: refers to the total amount due
from debtors. (customers)
Accounts payable: refers to the total amount owed
to creditors for the purchase of
goods and services by the business
Mortgage Payable: time to repay is longer (typically
larger in amount)
“ASSET”
“Liability”
“Liability”

19. Balance Sheet Preparation
Step 1: Prepare Statement Heading
Who, What, When?
Step 2: List Assets
Step 3: List Liabilities
Step 4: Show Owner’s Equity
- See Diagrams on Pages 7-8.

20. Facts to Remember
1) Totals of the left and right side must be written on the same line. 2) No abbreviations. 3) No corrections. 4) Dollar sign should be aligned and placed: - beside the first figure in each column - beside the final total on both sides of the statement.

21. Order of Items on Balance Sheet
See Examples Page 10
Order of Items on Balance Sheet
Assets (two types)
Liabilities
are listed according to the date they are due to be paid, that it, their maturity date.
From shortest to longest term.
Ex: Accounts Payable (30 days), Bank Loan (1-5 years),
Mortgage Payable (within 25 years)
1) Last a short time
- listed in order of their liquidity
2) Last a long time
- listed in order of their useful life to the business, with the longest lasting listed first.

22. Cost Principle
when an asset is obtained, its value is recorded at the actual cost to the business.
(does not rise…even if it is thought that the value of the asset has increased)

23. Accounting Information is Used to Make Decisions:
Creditors
Government
Investors
Management
Owners
Creditors
Companies considering to extend credit – want to know what liquid assets are available to meet payments.
Government
policy decision making, statistical reports, taxation
Investors
Financial position (protect investment)
Owners
Monitor financial position

24. Common Recording Practices
1) Ruled Accounting Paper – dollar signs, commas, spaces, and decimals are not used.
2) Single Line – Addition or Subtraction.
3) Double Line – Final Totals
4) Opposite of #1
5) No Abbreviations. (unless in official name)
6) Accounting records must be neat & legible!

25. GAAP – Generally Accepted Accounting Principles
(standard accounting rules and guidelines)
The Purpose of Accounting
The Business Entity Concept
The Cost Principle
Liquidity Order
Maturity Date Rule
(details given for each one on page 20 in your textbook)

26. Apply your knowledge!
Page (#5-8)