2 “The Language of Business” Accounting: planning, recording, analyzing, and interpreting financial infoAccounting System: a planned process of providing financial info that will be useful to managementAccounting Records: organized summaries of a business’s financial activities
3 Who Uses Accounting? Business owners Managers Accounting personnel InvestorsBankersIndividuals
4 What Can Inaccurate Accounting Records Lead To? Business failureBankruptcyPoor business decisions
5 TechKnow Consulting(pg3) Service Business: one that performs an activity for a feeProprietorship: a business owned by one personGAAP ConceptBusiness Entity:Financial information is recorded and reported separately from the owner’s financial info
6 Types of Accounts Asset: Equities: Anything of value that is owned Financial rights to the assets of a business2 types:LiabilitiesAn amount owed by a businessOwner’s EquityThe owner’s right to the assetsAmount remaining after the value of the liabilities is subtracted from the value of all the assets
7 Assets = Liabilities + Owner’s Equity Accounting EquationShows the relationship among assets, liabilities, and owner’s equityAssets = Liabilities + Owner’s EquityThe Accounting Equation MUST be in BALANCE to be correct.
8 How Business Activities Change the Accounting Equation 1-2
9 VocabTransaction: activity that changes assets, liabilities, or owner’s equityEX paying cash for insuranceAfter each accounting equation must remain in balance!!!!Account: a record summarizing all the information about 1 item in the accounting equationCash, Prepaid Insurance, Acct. Pay.-Joe’s Movie House
10 More Vocab Account Title: the name given to an account Account Balance: the amount in the accountCapital: the account used to summarize the owner’s equity in a businessOwner’s Name, Capital
11 GAAPUnit of Measure: Business transactions are stated in numbers that have common values; that is using a common unit of measureExample Pg 10$ to $NO hours to $
12 Common Business Transactions Receiving CashAug 1--Received cash from owner as an investment, $5,000Increases Cash, Increases O.E.Paying CashAug 3--Paid Cash for Supplies, $275Decrease Cash, Increase suppliesAug 3--Paid cash for Insurance, $1,200Decrease Cash, Increase Insurance
13 Transactions on Account Bought Supplies on AccountAug 7--Bought supplies on account from the Supply Depot, $500Increase SuppliesIncrease Supply DepotPaid Cash on AccountAug 11--Paid cash on account to Supply Depot, $300Decrease CashDecrease Supply Depot
14 How Transactions Change Owner’s Equity in an Accounting Equation Lesson 1-3
15 VocabRevenue—increase in owner’s equity resulting from the operation of a businessSale on account—sale for which cash will be received at a later date (charge sale)Expense—decrease in owner’s equity resulting from the operation of a businessWithdrawal—assets taken out of the business for the owner’s personal use
16 GAAP Concept Realization of Revenue: Revenue is recorded at the time goods and services are sold, regardless of when paid.--sales on account
17 Revenue Transactions Received Cash from Sales Sold Services on Account Aug. 12, Received cash from sales, $295Increase cashIncrease O.E.Sold Services on AccountAug. 12, Sold services on account to Oakland School, $350.Increase Accts. Rec.Increase O.E.
18 Expense TransactionsPaid cash for rent, telephone bill, advertising, etc.Aug. 12, Paid cash for rent, $300Decrease cashDecrease O.E.
19 Other Cash Transactions Received Cash on AccountAug. 12, Received cash on account from Oakdale schoolIncrease cashDecrease Accts. Rec.Paid cash to Owner for Personal UseAug. 12, Paid cash to owner for personal use, $125Decrease cashDecrease O.E.