ACCOUNTING = INFORMATION

ACCOUNTING RECORDING ECONOMIC INFORMATION ABOUT A BUSINESS ENTITY THAT WE CLASSIFY, SUMMARIZE, AND CONVEY TO INTERESTED PARTIES SO THEY CAN MAKE A WELL-INFORMED DECISION

PROCESS OF PREPARING ACCOUNTING INFORMATION

ACCOUNTING PERIOD PERIOD OF TIME COVERED BY THE FINANCIAL STATEMENTS PERIOD OF TIME COVERED BY THE FINANCIAL STATEMENTS PREPARED AT LEAST ONCE A YEAR PREPARED AT LEAST ONCE A YEAR –FISCAL PERIOD/ANNUAL REPORT MAY BE PREPARED MORE OFTEN MAY BE PREPARED MORE OFTEN –INTERIM FINANCIAL STATEMENTS

ACCOUNTING CYCLE STEPS THE FINANCIAL ACCOUNTANT GOES THROUGH FROM THE FIRST DAY OF THE ACCOUNTING PERIOD UNTIL THE LAST DAY OF THE ACCOUNTING PERIOD (READY TO BEGIN THE NEXT ACCOUNTING PERIOD) STEPS THE FINANCIAL ACCOUNTANT GOES THROUGH FROM THE FIRST DAY OF THE ACCOUNTING PERIOD UNTIL THE LAST DAY OF THE ACCOUNTING PERIOD (READY TO BEGIN THE NEXT ACCOUNTING PERIOD)

STEPS IN THE ACCOUNTING CYCLE 1. TRANSACTION 2. RECORD IN THE JOURNAL BY MEANS OF A JOURNAL ENTRY 3. POST FROM THE JOURNAL TO THE LEDGER 4. PREPARE A TRIAL BALANCE 5. ANALYZE ACCOUNTS AND COMPLETE THE ADJUSTMENT PROCESS 6. PREPARE AN ADJUSTED TRIAL BALANCE

STEPS IN THE ACCOUNTING CYCLE 7. DETERMINE WHICH FINANCIAL STATEMENT ACCOUNT IS REPORTED 8. PREPARE FINANCIAL STATEMENTS 9. JOURNALIZE/POST ADJUSTING ENTRIES 10. JOURNALIZE/POST CLOSING ENTRIES 11. PREPARE POST-CLOSING TRIAL BALANCE 12. PREPARE REVERSING ENTRIES

TRANSACTION EVENT THAT TAKES PLACE THAT CHANGES THE FINANCIAL POSTION OF THE COMPANY AND THEREFORE MUST BE RECORDED. EVENT THAT TAKES PLACE THAT CHANGES THE FINANCIAL POSTION OF THE COMPANY AND THEREFORE MUST BE RECORDED. MUST MEET THE CRITERIA ESTABLISHED BY THE FASB CONCEPTS MUST MEET THE CRITERIA ESTABLISHED BY THE FASB CONCEPTS –RELEVANT/RELIABLE/ELEMENT/IDENTIFIABLE /MEASUREABLE/ETC DOCUMENTATION OF TRANSACTION DOCUMENTATION OF TRANSACTION

JOURNAL ENTRY JOURNAL – A BOOK OR COMPUTER FILE IN WHICH ALL BUSINESS TRANSACTIONS ARE FIRST RECORDED JOURNAL – A BOOK OR COMPUTER FILE IN WHICH ALL BUSINESS TRANSACTIONS ARE FIRST RECORDED JOURNAL ENTRY – ENTER THE INFORMATION DESCRIBING THE TRANSACTIONS INTO THE JOURNAL USING APPROPRIATE FORMAT JOURNAL ENTRY – ENTER THE INFORMATION DESCRIBING THE TRANSACTIONS INTO THE JOURNAL USING APPROPRIATE FORMAT

CONSIDER THE FOLLOWING FINANCIAL TRANSACTION THE TRANSACTIONS ARE PRESENTED IN CAPITAL LETTERS AND THE CORRESPONDING ENTRY MY BY THE “ACCOUNTANT” ARE WRITTEN in script font THE TRANSACTIONS ARE PRESENTED IN CAPITAL LETTERS AND THE CORRESPONDING ENTRY MY BY THE “ACCOUNTANT” ARE WRITTEN in script font

THE OWNER OPENED A BUSINESS CHECKING ACCOUNT BY DEPOSTING $100,000 CASH FROM HIS PERSONAL CHECKING ACCOUNT INTO THE BUSINESS CHEKING ACCOUNT ON 1/1/2002 We could buy a note book and record the following info We could buy a note book and record the following info On January 1, 2002, the owner established a business checking account by depositing $100,000 cash into the checking account. On January 1, 2002, the owner established a business checking account by depositing $100,000 cash into the checking account.

THE OWNER SIGNED A PROMISORY NOTE BORROWING $200,000 FROM THE BANK DUE IN FIVE YEARS AND DEPOSITED THAT AMOUNT ON 1/1/2002 On January 1, 2002, the owner borrowed $200,000 cash from the bank and deposited it into the business checking account. On January 1, 2002, the owner borrowed $200,000 cash from the bank and deposited it into the business checking account.

THE OWNER SIGNED A REAL ESTATE CONTRACT FOR $25,000, WRITING A CHECK FOR $5,000, AND SIGNED A PROMISSORY NOTE FOR $20,000 On January 1, 2002, the owner purchased land for $25,000 – making a down payment of $5,000 and owing the balance due evidenced by signing a promissory note in the amount of $20,000. On January 1, 2002, the owner purchased land for $25,000 – making a down payment of $5,000 and owing the balance due evidenced by signing a promissory note in the amount of $20,000.

INVOICE FOR SUPPLIES USED TO COMPLETE A JOB $500 AND A COPY OF CHECK DRAWN ON BUSINESS CHECKING ACCOUNT ON 1/31/02 On January 31, 2002, the company wrote a check for $500 for supplies used by the company. On January 31, 2002, the company wrote a check for $500 for supplies used by the company.

INVOICE REPORING THE COLLECTION OF $700 FOR SERVICES RENDERED DATED 1/31/02 On January 31, the company received $700 for the completion of services rendered. On January 31, the company received $700 for the completion of services rendered.

OWNER WITHDREW $100 FOR PERSONAL USE, COPY OF CHECK 1/31/01 On January 31, 2002, the owner withdrew $100 cash from the business checking account for personal use. On January 31, 2002, the owner withdrew $100 cash from the business checking account for personal use.

THE FOLLOWING SLIDE SUMMARIZES THE NOTEBOOK ENTRIES FOR THE TRANSACTIONS DESCRIBED ABOVE

On January 1, 2002, the owner established a business checking account by depositing $100,000 cash into the checking account. On January 1, 2002, the owner established a business checking account by depositing $100,000 cash into the checking account. On January 1, 2002, the owner borrowed $200,000 cash from the bank and deposited it into the business checking account. On January 1, 2002, the owner borrowed $200,000 cash from the bank and deposited it into the business checking account. On January 1, 2002, the owner purchased land for $25,000 – making a down payment of $5,000 and owing the balance due evidenced by signing a promissory note in the amount of $20,000. On January 1, 2002, the owner purchased land for $25,000 – making a down payment of $5,000 and owing the balance due evidenced by signing a promissory note in the amount of $20,000. On January 31, 2002, the company wrote a check for $500 for supplies used by the company. On January 31, 2002, the company wrote a check for $500 for supplies used by the company. On January 31, the company received $700 for the completion of services rendered. On January 31, the company received $700 for the completion of services rendered. On January 31, 2002, the owner withdrew $100 cash from the business checking account for personal use. On January 31, 2002, the owner withdrew $100 cash from the business checking account for personal use.

ARE WE ACCOMPLISHING THE PROCESS OF ACCOUNTING THRU THE RECORDING OF THE TRANSACTIONS IN THE NOTEBOOK? YES YES RECORDING ECONOMIC INFORMATION RECORDING ECONOMIC INFORMATION

IS THIS THE MOST EFFICIENT METHOD TO ACCOMPLISH OUR GOAL? WHAT AMOUNT OF ASSETS DO WE HAVE? WHAT AMOUNT OF ASSETS DO WE HAVE? IS IT PROFITABLE SO FAR? IS IT PROFITABLE SO FAR? THIS FORMAT IS NOT CONDUCIVE TO EASILY CONVEYING THE INFORMATION WE HAVE RECORDED. THIS FORMAT IS NOT CONDUCIVE TO EASILY CONVEYING THE INFORMATION WE HAVE RECORDED. LET’S CHANGE THE FORMAT. LET’S CHANGE THE FORMAT.

ACCOUNT INDIVIDUAL RECORD KEEP FOR EACH FINANCIAL ITEM THAT WE WISH TO KEEP TRACK OF INDIVIDUAL RECORD KEEP FOR EACH FINANCIAL ITEM THAT WE WISH TO KEEP TRACK OF KEEP TRACK OF CASH = CASH RECORD OR THE CASH ACCOUNT KEEP TRACK OF CASH = CASH RECORD OR THE CASH ACCOUNT KEEP TRACK OF ACCOUNTS PAYABLE = CASH PAY RECORD OR ACCOUNTS PAYABLE ACCOUNT KEEP TRACK OF ACCOUNTS PAYABLE = CASH PAY RECORD OR ACCOUNTS PAYABLE ACCOUNT

ACCOUNT CLASSIFICATION EVERY FINANCIAL ITEM THAT WE KEEP TRACK OF (ACCOUNT), FALLS INTO ONE OF THREE CLASSIFICATIONS EVERY FINANCIAL ITEM THAT WE KEEP TRACK OF (ACCOUNT), FALLS INTO ONE OF THREE CLASSIFICATIONS –ASSETS –LIABILITIES –CAPITAL (OWNERS EQUITY/SH EQUITY)

ASSETS ALL RIGHTS AND PROPERTIES OWNED BY THE BUSINESS ALL RIGHTS AND PROPERTIES OWNED BY THE BUSINESS PROBABLE FUTURE ECONOMIC BENEFITS PROBABLE FUTURE ECONOMIC BENEFITS

LIABILITES DEBTS OF THE BUSINESS DEBTS OF THE BUSINESS OBLIGATION OF THE BUSINESS OBLIGATION OF THE BUSINESS CREDITORS’ (SOMEONE WE OWE MONEY TO) CLAIM AGAINST THE ASSETS OF THE BUSINESS CREDITORS’ (SOMEONE WE OWE MONEY TO) CLAIM AGAINST THE ASSETS OF THE BUSINESS

CAPITAL NET WORTH OF THE OWNERS NET WORTH OF THE OWNERS RESIDUAL INTEREST IN THE BUSINESS RESIDUAL INTEREST IN THE BUSINESS OWNERS’ CLAIM AGAINST THE ASSETS OF THE BUSINESS OWNERS’ CLAIM AGAINST THE ASSETS OF THE BUSINESS

ACCOUNTING EQUATION ASSETS = LIABILITES + CAPITAL RECORD THE ABOVE TRANSACTIONS ON SLIDE 18 IN THE ACCOUNTING EQUATION FORMAT PRESENTED ON THE NEXT SLIDE #27

RECORDING TRANSACTIONS IN THE ACCOUNTING EQUATION DATE ASSETS = LIABILITIES + CAPITAL 1/1/02+100, ,000

ASSIGNMENT REFER BACK TO THE ENTRIES ON SLIDE 18 REFER BACK TO THE ENTRIES ON SLIDE 18 PREPARE A FORM LIKE THE ONE IN SLIDE 27 AND COMPLETE FOR ALL THE TRANSACTIONS FROM SLIDE 18 PREPARE A FORM LIKE THE ONE IN SLIDE 27 AND COMPLETE FOR ALL THE TRANSACTIONS FROM SLIDE 18