October 21, 2014.  The purpose of accounting is to provide the necessary financial information so that accurate and timely decisions can be made.

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Presentation transcript:

October 21, 2014

 The purpose of accounting is to provide the necessary financial information so that accurate and timely decisions can be made.

 Accounting: the process of recording, analyzing, and interpreting the economic activities of a business.  Transaction: the process of exchanging something of value for something else of value.  Bookkeeping: the recording of all transaction.  Double-entry bookkeeping: each transaction involves two changes (debit and credit).

 Asset: something that has value and is owned by a person or company.  Liability: debts or amounts that are owed to others.  Owner’s equity: net worth of a business. Calculated as Assets – Liabilities = Owner’s Equity  Net worth: what you have left after all debts are paid.  Balance sheet: a financial statement used in a business and prepared by accountants to show the financial position of that business on a particular date.

 Cost principle: the accounting practice of always recording an asset at the actual amount it cost the business.  Depreciation: when an asset loses value over time.  Accounts receivable: an asset; money that is owed to a business.  Accounts payable: a liability; money that a business owes.  Mortgage payable: a liability; mortgage on a building.  Liquidity: the ease of converting an asset into cash.

 What is the purpose of accounting?  Define double-entry bookkeeping.  What is the difference between an asset and a liability?  How can you calculate the owner’s equity of a business?  What is the cost principle?

Statement Heading List the assets List the liabilities Calculate owner’s equity

VALUESSTEPS  Assets:  Cash in the bank = $4,500 Inventory = $23,000 Office Supplies = $2,500 Office Equipment = $5,000  Liabilities:  Accounts Payable = $15,000 Notes Payable = $10,000  Owner's Equity:  Bill Campbell - Capital = $????? 1. Statement Headings 2. List the assets in order of liquidity 3. List the liabilities in order of maturity date 4. Calculate the owner’s equity 5. Put it all together

Here are a few transactions and their effects on assets, liabilities, and owner’s equity. The company purchases an automobile ($15 000) for cash. Accounts affected : Bank (decrease by $15 000) Automobiles (increase by $15 000) The company pays a creditor $650. Accounts affected : Bank (decrease by $ 650) Accounts Payable (decrease by $650) The company performs a $2 000 service for a customer on credit. Accounts affected : Accounts Receivable (increase by $2 000) Capital (increase by $ 2 000)

The owner invests $4 000 into the company. Accounts affected : Bank (increase by $4 000) Capital (increase by $4 000) The owner withdraws $1 000 of the company’s money for personal use. Accounts affected : Bank (decrease by $1 000) Capital (decrease by $1 000) The company buys $5 000 of equipment on credit. A ccounts affected : Accounts Payable (increase by $5 000) Equipment (increase by $5 000)

A customer pays $500 of his/her debt owed to the company. Accounts affected : Bank (increase by $500) Accounts Receivable (decrease by $500) $100 worth of supplies are stolen from the company. Accounts affected : Supplies (decrease by $100) Capital (decrease by $100)