1. ACCOUNTING

2. The system used by an organization to keep a record of all the money that comes in and goes out of a business. –This includes payments received from customers, the purchase of a new computer or paying wages to an employee

3. MYTHS ABOUT ACCOUNTING You do not need to be great at math to do well in accounting You need to be able to use the basic functions of a calculator and to be able to read and interpret what is happening

4. RULES OF THE GAME Just like any sport or game accountants have a set of rules they must follow International Financial Reporting StandardsThese standards are called “IFRS” which stands for International Financial Reporting Standards These are worldwide standards that accountants must follow

5. 2 BASIC PURPOSES OF ACCOUNTING To keep track of the financial state of the company To use the financial statements to compare financial activities of a company with previous years or with other companies

6. WHAT IS A FINANCIAL STATEMENT? They are formal documents that use a standard format to provide key information about a company’s financial position Goal is to provide accurate information on a regular basis about the company’s financial health

7. Financial Statements We will be learning how to create the two main financial statements: Balance Sheets AND Income Statements

8. Fiscal Year 12 consecutive months at the end of which the business produces its annual financial statements. Doesn’t have to follow a calendar year –Example: Feb 1, 2013 – Jan 31, 2014

9. PERSONAL BALANCE SHEET A balance sheet is a statement of net worth OWNOWE –Net worth: is the difference between what you OWN and what you OWE Assets OWNAssets are things you OWN Liabilities OWELiabilities are things you OWE

10. REALLY IMPORTANT STUFF THE FUNDAMENTAL ACCOUNTING EQUATION: ASSETS = LIABILITIES + OWNER’S EQUITY (A=L+OE) Bad accounting joke #1: Why are accountants so smooth? Because they use A=L+OE

11. THE BALANCE SHEET FOR A BUSINESS

12. THE BALANCE SHEET a snapshot of a business’s financial affairs at a single point in time –It tells a company what it owns and what it owes as at a specific day

13. WHAT IS THE DIFFERENCE BETWEEN A PERSONAL & A BUSINESS BALANCE SHEET? The difference is that net worth is now called owner’s equity Net worth is how much one person is worth in terms of money Owner’s equity is how the owner invested when starting the business plus all the profits/losses from previous years

14. THE FUNDAMENTAL ACCOUNTING EQUATION (AGAIN…) ASSETS = LIABILITIES + OWNER’S EQUITY

15. SOME TYPES OF ASSETS The purpose of any asset is to earn the company money Accounts Receivable (A/R) – is money for which a company has billed its customers, but has not yet received (You’ve sold something, just haven’t been paid yet)

16. SOME TYPES OF LIABILITIES The most common liability is ACCOUNTS PAYABLE Account Payable – is the money that the business owes to other business that supply it with services/goods (You’ve bought something, just haven’t paid for it yet)

17. ORDER OF ACCOUNTS Assets: Listed in order of LIQUIDITY, meaning the order in which the assets can be converted into cash. –“Bank” or “Cash” is the most liquid –“A/R” are usually next – Vehicles, Equipment, Land follow

18. Liabilities: Listed in the order in which they are normally paid -A/P would be first, then longer loans (car, bank), then really long term loans like mortgages ORDER OF ACCOUNTS

19. Fast Forward Computer Repair Services Balance Sheet as at April 24, 20- - Assets Cash $ 7400 Account Receivable 16000 Supplies 1600 Equipment 6000 Motor Vehicles 14000 Total Assets $45000 Liabilities Account Payable $ 3100 Loan Payable 5100 Total liabilities $ 8200 Owner’s Equity Alex, Capital $36800 Total Liabilities & Owner’s Equity $45000

20. THE INCOME STATEMENT

21. Reports a company’s revenues and expenses for a fiscal period Allows us to answer some questions that were not answered by the balance sheet such as “is this business profitable?”

22. SOME IMPORTANT TERMS REVENUE: money earned by a variety of sources For example: sale of goods or services EXPENSES: is the money a company must spend in order to provide their goods or service For example: rent, employee salaries Net Income: Revenue – Expenses (when revenue is bigger then expenses..if expenses are bigger it’s called a Net Loss)

23. Revenue Computer Repair Income$ 40000 Computer Sales 20000 Total Revenue $_60000_______ Expenses Advertising Expense $3000 Bank Charges 500 Maintenance Expense 450 Telephone Expense 50 Total Expenses __4000______ Net Income (Loss) $___56000_____ Fast Forward Computer Repair Services Income Statement For the Year ended December 31,20--

24. WHO USES FINANCIAL STATEMENTS? Owners & Managers –Need accurate information to make decisions for the business –They could ask: Are our expenses reasonable?, Should we charge more for our product? Etc. Investors –Is this business profitable?, do I want to invest in this business?

25. Lenders –Will this company be able to pay me back the money I loan them? Government –Is this company paying me the right amount of tax? WHO USES FINANCIAL STATEMENTS contd.