1. Ahmed Elshahat1 THE LANGUAGE OF ACCOUNTING

2. Ahmed Elshahat2 1. THE LANGUAGE OF ACCOUNTING ACCOUNTING DEFINED WHO USES ACCOUNTING? TYPES OF ACCOUNTING INFORMATION ACCOUNTING PRINCIPLES, ASSUMPTIONS / CONCEPTS FORMS OF BUSINESS ORGANIZATION FINANCIAL STATEMENTS TYPES OF ACCOUNTS

3. Ahmed Elshahat3 TYPES OF ACCOUNTING INFORMATION Financial: Used by management and external users... Ex. financial statements Internal Auditing: Evaluating system of internal control... reports are accurate and reliable (Income) Tax Accounting: Must pay Uncle Sammy Management (cost) Accounting: Internal use... (CMA)

4. Ahmed Elshahat4 GAAP (Generally Accepted Accounting Principles) Broad rules adopted by the accounting profession. Sources; 1.FASB: Financial Accounting Standards Board 2.SEC: Securities & Exchange Commission 3.AICPA: American Institute of CPA's 4.GASB: Government Accounting Standards Board 5.AAA: American Accounting Association 6.CMA: Certified Management Accountants

5. Ahmed Elshahat5 ACCOUNTING PRINCIPLES, ASSUMPTIONS / CONCEPTS Cost principle Ongoing concern concept Business entity concept Objectivity principle Stable-dollar concept Realization principle Monetary unit assumption

6. Ahmed Elshahat6 Types of accounts Balance Sheet Accounts Assets - Liabilities + Owner's Equity "Real", "Permanent" Income Statement Accounts Revenues - Expenses "Nominal", " Temporary"

7. Ahmed Elshahat7 The complete accounting cycle

8. Ahmed Elshahat8 2. The recording process TRANSACTIONS Source documents Journal (General Journal): ACCOUNT TERMINOLOGY DOUBLE ENTRY ACCOUNTING CHART OF ACCOUNTS Journalizing POSTING TRIAL BALANCE

9. Ahmed Elshahat9 Transaction All financial dealings of the business must be:  identified - source document  recorded - in "journal"  summarized - statements and reports Business Paper: Source document... proof transaction happened.  Ex.- check, invoice, receipt, etc.

10. Ahmed Elshahat10 Journal (General Journal): Book of original entry

11. Ahmed Elshahat11 ACCOUNT TERMINOLOGY Asset: Resources owned by a business.  Ex.: Cash, Accounts Receivable, Supplies, Building, Land, etc. Liabilities: Creditorship claims on total assets (debts).  Ex.: Accounts Payable, Notes Payable, Unearned Revenue, etc. Owner's Equity Accounts: The ownership claim on total assets. Ex.: capital account, withdrawal account (drawing) "Real" Accounts: Balance sheet accounts.  Ex.: assets, liabilities, owner's equity "Nominal" Accounts (Temporary): Income statement accounts. Ex.: revenues, expenses “T” Accounts: Used for working papers, teaching technique, etc. - not part of accounting records. Balance-column Accounts: Ledger accounts.

12. Ahmed Elshahat12 DOUBLE ENTRY ACCOUNTING Every transaction affects and is recorded in two or more accounts with equal debits and credits.  Debit - (Dr) Left side of an account  Credit - (Cr) Right side of an account

13. Ahmed Elshahat13 JOURNALIZING

14. Ahmed Elshahat14 CHART OF ACCOUNTS Is a numeric listing of all the entity's assets, liabilities, equity, revenue and expense accounts; Is used to code each transaction entered into the accounting system, and Facilitates the uniform reporting process.

15. Ahmed Elshahat15 CHART OF ACCOUNTS

16. Ahmed Elshahat16 General Journal

17. Ahmed Elshahat17 Posting

18. Ahmed Elshahat18 TRIAL BALANCE

19. Ahmed Elshahat19 Ex. TRIAL BALANCE

20. Ahmed Elshahat20 3. ADJUSTING AND CLOSING ENTRIES WHAT ACCOUNTS ARE ADJUSTED? WHY ADJUST? Depreciation Accrual Relationships Types of Entries INCOME STATEMENT PREPARATION BALANCE SHEET PREPARATION Closing Entries

21. Ahmed Elshahat21 WHAT ACCOUNTS ARE ADJUSTED?

22. Ahmed Elshahat22 WHY ADJUST? Time Period Concept/Periodicity:  The idea that the life of a business is divisible into time periods of equal length. Ex: monthly, quarterly, annual... financial reports; 1.fiscal year 2.calendar year 3.natural business year

23. Ahmed Elshahat23 WHY ADJUST? (Cont.) Realization Principle requires that revenue be assigned to the accounting period in which it is earned, rather than to the period it is collected in cash (this is the basis for accrual accounting) Matching Principle requires that revenues and expenses be matched; all expenses incurred in earning a revenue must be deducted from the revenue in determining net income "True picture" -- accuracy

24. Ahmed Elshahat24 Depreciation

25. Ahmed Elshahat25 Accrual Relationships

26. Ahmed Elshahat26 Types of Entries

27. Ahmed Elshahat27 Adjusting -- Posting of Adjusting Entries Exercise: The following unadjusted accounts and related balances are provided at September 30:  Accounts Receivable$2,400  Supplies1,200  Salary Payable-0-  Unearned Revenue500  Revenue15,000  Salary Expense2,100  Depreciation Expense-0-  Accumulated Depreciation3,000

28. Ahmed Elshahat28 Instructions: Open T-accounts and post the adjusting entries indicated from the following data: (a) Supplies on hand, $200 (b) Revenue earned but not accrued, $900 (c) Unearned revenue earned but not recorded, $400 (d) Salary owed to employees, $700 (e) Depreciation of $200 is recognized.

29. Ahmed Elshahat29 Answer;

30. Ahmed Elshahat30 Summary

31. Ahmed Elshahat31 Closing Entries PURPOSE OF CLOSING ENTRIES WHAT ACCOUNTS ARE CLOSED? STEPS IN MAKING CLOSING ENTRIES SUMMARY OF THE CLOSING PROCESS

32. Ahmed Elshahat32 PURPOSE OF CLOSING ENTRIES Closing Entries are made to clear and close nominal accounts (Revenue and Expense) and to transfer the amount of net income or loss to capital accounts (i.e. Owner's Equity). Accounts to be closed are; Revenues, expenses, drawings, income.

33. Ahmed Elshahat33 STEPS IN MAKING CLOSING ENTRIES Transfer credit balances from income statement to Income Summary Transfer the debit balances from income statement to Income Summary Transfer the Income Summary balance to the Capital account Transfer the Withdrawals account balance to the Capital account

34. Ahmed Elshahat34 SUMMARY OF THE CLOSING PROCESS