$200 $300 $400 $500 $100 $200 $300 $400 $500 $100 $200 $300 $400 $500 $100 $200 $300 $400 $500 $100 $200 $300 $400 $500 $100 Terminology Financial Statements GAAPTransactionsOther

BUSINESS TRANSACTION

A financial event that affects assets, liabilities or owners equity

An asset representing amounts due from customers

ACCOUNTS RECEIVABLE

Costs incurred by a business in earning revenue

EXPENSES

Owner withdrawing money for personal use

DRAWINGS

The fees a business charges for buying or selling goods (ex: real estate, for clients)

COMMISSIONS

The two financial statements are called…

INCOME STATEMENT & BALANCE SHEET

The financial statement that is completed first

INCOME STATEMENT

Advertising Expense can be found on the..

INCOME STATEMENT

What 3 questions does the heading of an Income Statement ask

WHO? WHAT? WHEN?

What does the income statement tell the reader?

HOW MUCH THE BUSINESS MADE OR LOST OVER A REPORTED PERIOD OF TIME

 Revenue should be recognized at the time of sale and/or rendering services

GAAP REVENUE PRINCIPLE

Expenses must be recognized and recorded when they are incurred

GAAP EXPENSES PRINCIPLE

Revenues & expenses must be correlated to report net income/net loss for an accounting period

GAAP MATCHING PRINCIPLE

One aspect of accounting theory that views the business as being separate, distinct, and apart from its owners

GAAP ENTITY CONCEPT

DAILY DOUBLE

Taylor’s Catering Co. Advertised on the local radio station, Country 100. They received the radio station’s monthly invoice on March 29, The invoice indicated that payment was due by the 15 th of the following month. 1.What GAAP underlies this transaction? 2. What is the key date in this transaction? Why is this date regarded as key? 3. Record the elements that are affected, whether they increase or decrease the accounting equation and explain why?

1.Expense Principle 2.March 29, 2009 – b/c the expense is recognized when the expense is incurred, not when the cash is paid out. 3. The elements affected are liabilities (increase) and owner’s equity (decrease – new expense). Two accounts – accounts payable and advertising expense

Salaries, Heat, Phone, Cell Phone, Adverstising

EXPENSES

Received $280 on account from a client -What accounts are affected? -Increase or decrease?

ACC. REC. decreases by 280 CASH increases by 280

Paid $1500 on account Accounts? Increase or Decrease?

Acc. Pay. Decreases by $1500 Cash Decreases by $1500

When a computer is purchased for cash, what side of the account is affected?

LEFT SIDE ASSETS

The new info added to the OE section of the balance sheet in this chapter...

- REVENUE AND EXPENSES (NET INCOME OR NET LOSS) - DRAWINGS

Create the OE section of the balance sheet based on the following information: Drawings $1200 Capital $ Net Income $ 8 000

Owner’s Equity Lapointe, Capital $ Add: Net Income Less: Drawings Total Owner’s Equity $16 800

What is the difference between sales and fees earned?

SALES – SELLING GOODS FEES EARNED – SERVICE BASED BUSINESS

When an asset is bought on credit, liabilities...

INCREASE

Sold services to a customer on credit. A = L + OE Accounts? Increase? Decrease?

Fees Earned – Increase Acc. Rec. - Increase

Paid cash for rent expense. Accounts? Increase? Decrease?

CASH – DECREASES RENT EXPENSE – IS SUBTRACTED FROM REVENUE

 As a team create an income statement and balance sheet based on the information on the next slide.  You must create it as a group and submit one copy of each sheet. The same person cannot write both.

 Lapointe’s Teaching Service (Aug. 31, 2009)  Fees Earned: , Rent Expense: 2000, Advertising Expense: 1000, Telephone Expense: 500- IS – for the month  Cash: , Car: 7000, Equipment: 2000, Bank Loan Pay: 6000, Acc.Pay. Joe: 200, Acc.Pay. John: 800, Drawings: 1000, Capital 6500

- Income Statement - Balance Sheet

 Return back to your original seat  Hand out study guide  Ch. Problems and Questions due the day of exam  Practice Test and Quizzes Due