BAF3M Fundementals of Accounting

What is Accounting? Accounting Identifies Records Communicates Is a System that Relevant Reliable Comparable Consistent To help users make better decisions This happens in either a Service Business (UPS) or a Merchandising Business (Walmart).

The Accounting Cycle There are 7 steps in the Accounting Cycle. 1.Journalize (Using the General Journal) 2.Post (To Ledger Accounts – which are also known as T- Accounts) 3.Trial Balance (Can enter on the Worksheet) 4.Adjustments (On the worksheet) 5.Complete the Worksheet 6.Financial Statements (Income Statement then the Balance Sheet) 7.Closing Entries (Closing the Temporary Accounts – Drawings, Revenue, Expenses) * The Accounting Cycle Handout* We are going to start here

Unit # 1 – The Balance Sheet  Contains 3 headings:  Assets = Liabilities + Owner’s Equity Accounting is based off of this equation! You must know it!  This tells us the Financial Position of a Company!

Unit # 1 – The Balance Sheet  What are Assets? Anything that a Business (or Person) owns of value.  What are Liabilities? Anything that a Business (or Person) owes of value.  Therefore: Assets = Owns Liabilities = Owes

Unit # 1 – The Balance Sheet  So what are examples of Assets? Cash ($ in the Bank) Accounts Receivable  $ that is owed to you by customers – aka. Your money in someone else's hands Equipment Cars Computers Furniture (Desks, Chairs, Cubicles) Factory Land  A business owns these!

Unit # 1 – The Balance Sheet  What about Liabilities? Bank Loan Credit Card Debt Accounts Payable Wages Payable Salaries Payable Mortgage Payable  “Payables” are money that you owe to another business (ex. A Supplier)

Unit # 1 – The Balance Sheet  Owner’s Equity Net Worth of a Business (The Difference Between Assets & Liabilities). There is only one Equity Account you need to know (as of now): Capital Recall A = L + OE  Therefore: A – L = OE If A > L, the Business has a Positive Net Worth If A < L, the Business has a Negative Net Worth

Unit # 1 – The Balance Sheet  Activity:  You will get a card. Your goal is to find out where you belong….Are you an Asset, Liability, or Owner’s Equity? A, L, OE Pictionary  You will be put into teams. Each team will get one answer to guess the “drawing” of the card.  The Answer will be either: Asset Liability Owner’s Equity

Unit # 1 – The Balance Sheet Turn to Page 7  Step 1 – Prepare Headings  Line 1 – Who?  Line 2 – What?  Line 3 – When?  Step 2 – List Assets on Left Side Put Assets in order of Liquidity  Liquidity means how fast the assets can be converted into cash.

Unit # 1 – The Balance Sheet  Step 3 - List Liabilities on Right Hand Side Put Liabilities in order of Maturity  Maturity means that the bills (or accounts) that are due first, are listed first.  Step 4 – List Owner’s Equity on Right Hand Side  Step 5 – Make sure that your Assets (Left Hand Side) and your Liabilities & Owner’s Equity (Right Hand Side) balance.

The Balance Sheet Pg 7 of your Textbook Goldman's Gym Balance Sheet Sept. 30, 20XX Assets Liabilities Cash Accounts Payable Accounts Receivable Bank Loan Computers Mortgage Payable Land Total Liabilities Building Training Equipment Owner's Equity R. Millar, Capital Total Liabilities & Owner's Equity Total Assets

Unit # 1 -The Balance Sheet Liquidity Order  Cash: Most Liquid  Accounts Receivable: Paid within 30 Days  Land, Building, Equipment: Longest life remaining listed first Maturity Order  Accounts Payable: Due within 30 Days  Bank Loan: Usually 1-5 Years  Mortgage: Usually 25 Years

Users of the Balance Sheet  Owners – Indicates the owners claim on the business assets. Comparing Balance Sheets at different points in time will show whether the financial position is improving  Creditors – Companies considering extending money are interested in the liquid assets available to meet payments as well as the claims on assets

Users of the Balance Sheet  Investors – The Financial position of a business is one of the main factors investors consider when deciding whether or not to invest in a business. They want to protect their investment and are interested in the same information as the creditors.  Government – Government departments need information for policy decision making, statistical reports, and taxation.

Balance Sheet Order Game  You will receive one card.  You must rearrange yourselves in the correct Balance Sheet order starting from the “Titles”, to Assets, to Liabilities, and finally to Owner’s Equity

GAAP’s  GAAP stands for Generally Accepted Accounting Principle.  There are many GAAP’s and will we cover each of them as they come up throughout the semester.  So far we have covered two. The Business Entity Principle The Cost Principle

GAAP’s so far….  Business Entity Principle The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization.  Cost Principle Items are recorded in the books at the historical cost paid by the purchaser, and do not change from their original value.