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AOF Entrepreneurship Unit 3, Lesson 9 Accounting Basics Copyright © 2009–2012 National Academy Foundation. All rights reserved.

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Presentation on theme: "AOF Entrepreneurship Unit 3, Lesson 9 Accounting Basics Copyright © 2009–2012 National Academy Foundation. All rights reserved."— Presentation transcript:

1 AOF Entrepreneurship Unit 3, Lesson 9 Accounting Basics Copyright © 2009–2012 National Academy Foundation. All rights reserved.

2 Accounting is important in today’s world Accounting is an integral part of running a business. Accounting helps entrepreneurs make decisions about every facet of a business. Accounting can show operational strengths and weaknesses, thus allowing entrepreneurs to make changes that make the company more profitable.

3 The accounting cycle is a series of steps 1.Collect and analyze source documents 2.List each transaction chronologically in the general journal 3.Post to the general ledger 4.Prepare a trial balance 5.Prepare financial statements 6.Make post-closing journal entries 7.Create a post-closing trial balance

4 The general journal lists transactions by date A general journal contains a chronological listing of a business’s financial transactions. Journalizing is the process of recording financial transactions into a journal. Before entering a transaction into the journal, you must decide which accounts will be affected. Why would you want to organize financial transactions in the order in which they occurred?

5 The general ledger lists transactions by account A general ledger keeps specific account information together and tracks individual account balances. The information from the journal is transferred to the respective account in the general ledger in chronological order. Why would it be helpful to track the financial information from specific accounts?

6 A trial balance helps you make sure you’ve entered everything correctly in the general ledger A trial balance lists account names and their balances on a specific date. It proves the general ledger is in balance. You can detect errors by preparing a trial balance. The sum of all debits must equal the sum of all credits. What are some types of errors that can be made during the accounting cycle?

7 The income statement shows revenues and expenses for a specific time period By listing aggregated revenues and expenses, you can identify anything unexpected or out of balance. By subtracting expenses from revenues, you can see how much you made (or lost) during the time period you’re reporting. Information from the income statement is used in other financial statements.

8 The statement of changes in owner’s equity (SCOE) shows the company’s worth at the end of the accounting period The SCOE is usually prepared after the income statement and before the balance sheet. The SCOE reports the change in capital from the beginning to the end of a time period. Capital can be increased or decreased during each accounting cycle. What are the benefits of reinvesting a company’s net income back into the company? Domingo’s Dance Studio Statement of Changes in Owner’s Equity For the Month Ended February 28, 2009 Beginning Capital Balance, February 1, 2009 0.00 Add: Investments by Owner 2,000.00 Subtotal 2,000.00 Less: Withdrawals by Owner1,000.00 Net Loss -270.00 Total Decrease in Capital 1,270.00 Ending Capital, February 28, 2009 730.00

9 The balance sheet reports a company’s assets, liabilities, and shareholder equity

10 Performance reports help control expenses and plan for the future Performance reports serve to: Analyze differences between projected and actual sales, costs, and expenses Identify significant and/or unfavorable differences needing corrective actions Cooper's Kites Performance Report For Year Ended December 31, 2013 Increase/(Decrease) ProjectedActualAmountPercentage Operating Revenue Net Sales$50,000$62,847$12,84725.69% Cost of Merchandise Sold 25,50032,0626,56225.73% Gross Profit on Operations 24,50030,7856,28525.65% Operating Expenses Selling Expenses Advertising Expense1,3251,88055541.89% Supplies Expense--Sales57674817229.86% Total Selling Expenses1,9012,62872738.24% Administrative Expenses Depr. Expense--Office Equipment714 00.00% Depr. Expense--Computer System1,000 00.00% Insurance Expense1,720 00.00% Payroll Taxes Expense2,8502,660-190-6.67% Rent Expense1,200 00.00% Salary Expense--Administrative9,500 00.00% Supplies Expense--Administrative43556513029.89% Uncollectible Accounts Expense1121594741.96% Utilities Expense869927586.67% Total Administrative Expenses18,40018,445450.24% Total Operating Expenses20,30121,0737723.80% Income from Operations 4,1999,7125,513131.29% Other Revenue and Expenses Interest Revenue 26381246.15% Net Income before Federal Income Tax 4,2259,7505,525130.77% Federal Income Tax Expense6341,463829130.76% Net Income after Federal Income Tax 3,5918,2874,696130.77% Units of Item Sold1000124824824.80%

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