Accounting BBI2O

What is Accounting? The process of recording, analyzing and interpreting the economic activities of a business

Accounting Concepts Inventory Cash Key Concepts Double-Entry Bookkeeping Inventory Cash +$300 - $300

Balance Sheet Assets Liabilities - Account Payable Owner’s Equity Cash A/R Inventory Building Liabilities - Account Payable Bank loan Mortgage Owner’s Equity Or Net Worth Or Personal Equity

What is GAAP? G – Generally A – Accepted A – Account P – Principals

Balance Sheet Share Holders Government Investors Creditors

Key Terms Net Worth/Personal Equity Asset Liability Equity Income Expenses

Key Terms Asset Liability Something of value owned by the business Debts or amounts owed to others

Key Terms Equity What you would have left after you have paid off your debts The Accounting Equation: Assets – Liabilities = Owner’s Equity

Key Terms Revenue Expenses Money that business generates from business activities (i.e. sales) Expenses Money that the business must pay to carry on business activities (i.e. rent)

Key Terms Profit Assets= Revenue - Expenses The money that the business has earned after all expenses are paid Assets= Revenue - Expenses

Calculating your Net Worth Your net worth is a measure of how valuable you are in terms of $$$. On a piece of paper make two columns: OWN OWE List all the items and their approx $ value that you own and any monies that you may owe. Net worth = own – owe Are any of your assets more liquid than others?

Homework Read p. 273 – 280 in the textbook Answer questions on p. 280 Review Questions 1 to 6

Accounting: The Basics

Net Worth AKA your “financial position” How do we calculate it?

What is… An Asset A Liability Equity

The Balance Sheet So, we know how to calculate financial position. The formal way to do this is in a balance sheet A balance sheet is a statement showing the financial position of a person, business, or other organization

A Sample Balance Sheet

The Balance Sheet Set up in the form of the basic accounting equation: A = L + E Assets on left, liabilities and equity on right 3 line heading Who? What? When? Assets listed in order of liquidity Liabilities listed in order in which they must be paid

The Balance Sheet for a small business Who? What? When?

Accounts Receivable Customers buy goods with the understanding that they’ll pay later They owe money to you, and so these debts represent a dollar value to the business Also known as A/R

Accounts Payable Same deal. You may owe money, for example to a supplier, so you’re in debt This is an obligation or liability Also known as A/P