Lesson 1: The Role of Accounting

The Role of Accounting Objectives Define Accounting Identify how accounting is used to support a business Understand why accounting is important Identify the different types of business and how they are affected by accounting Introduce objectives

Discussion 1 Accounting defined: What do you think accounting is? Accounting is the process of keeping track of a business’ finances. Have students share what they think the definition of accounting is before showing definition.

Lesson 1-1 What Is Accounting? LO1 Accounting is the process of planning, recording, analyzing, and interpreting financial information. An accounting system is a planned process designed to compile financial data and summarize the results in accounting records and reports. Financial reports that summarize the financial condition and operations of a business are called financial statements. Page 6

Discussion 2 Service Business Manufacturing Merchandising Business Restaurant, Carwash, hair salon Manufacturing appliances, automobiles, cellular phones Merchandising Business Grocery Stores, Clothing Stores, Auto parts Store

Accounting includes logging financial transactions, running reports based on the transactions, and interpreting the reports to understand a company’s worth. Types of financial transactions: Selling of merchandise Purchasing of equipment Collection of money Paying bills Types of reports a business uses: Balance Sheet Income Statement Capital Statement Cash Flows

Supporting the Business Accounting shows: How much others owe to the business How much the business owes others May want to add that this information is derived from the transactions and reports discussed on previous slide. How much money the business has

Uses of Accounting Who uses accounting information: Business Owners Managers of various operations Stakeholders Sales Manager How accounting information is used: Create Budgets and make business decisions Measure performance Make investment decisions Give examples for who’s: Owners – those who created and operate the company. Managers of various operations – Product, Marketing, Finance, Human Resources, Sales, etc… Stakeholders – those who have a stake or interest in the company, such as: owner(s), investors, employees, and the government. Sales Manager – measure the amount of business specifics to see which areas are strong and weak, responsible for driving business

Activity Name the person or group that would use accounting information to make the following decisions: 1. Whether or not to invest money into purchasing another building. 2. How much money should be budgeted toward buying supplies this month? 3. How well the Sales department has performed for the month. Answers: 1. Stakeholders 2. Owner(s) 3. Sales Manager 4. Operations Manager and/or Owner 5. Stakeholders   Students probably will not know the different types of managers, but as long as they say manager it is acceptable. 4. How to cut printing costs. 5. Whether or not to purchase new equipment.

GAAP Generally Accepted Accounting Principles (GAAP) Guides a business as to what should be included when creating and sharing a business’ financial information. This is to ensure consistency in the business community as well as to protect those who use this information to make economic decisions.

How does accounting impact a business’ taxes? A business needs to properly report and pay the following: • Local tax • State tax (e.g. Sales tax) City = 1% Type A sales tax = .25% Type B sales tax = .25% County = .5% State = 6.25% • Federal tax • Taxes withheld from employees’ paychecks Low-4.5% Middle-17% Upper-24.6% Ask students questions such as: When they purchase some items, what type of tax do they pay? Correlate to a business paying the government for the sales tax they collected. (bullet point 1) Have they ever received a paycheck? If yes, follow-up with questions about money deducted. If no, discuss money withheld from a check. (bullet point 4)

How Accounting Affects Types of Businesses Accounting affects the different business types because: Taxes are handled differently based on the type of business Affects the business’ ability to gain money or capital Can affect the initial and recurring costs of the business Ask students questions such as: When they purchase some items, what type of tax do they pay? Correlate to a business paying the government for the sales tax they collected. (bullet point 1) Have they ever received a paycheck? If yes, follow-up with questions about money deducted. If no, discuss money withheld from a check. (bullet point 4)

Types of Businesses Sole Proprietorship – A business that is owned by one person who typically runs and manages the business. In a sole proprietorship, the owner is personally liable for the business. Partnership –Two or more people who share the ownership of a single business. Percentages are not always split equally. Corporation– An organization that is made up of many owners who are not normally in the decision-making and operations of the business, but they have an interest in the company. In a corporation, investors are protected from personal liability. Limited Liability Company (LLC) – A business type that combines the benefits of partnership’s flexibility and a corporation’s protection. Members of an LLC are only liable for what they invested in the company and no more.

What did you learn? Summary Define Accounting Identify how accounting is used to support a business Understand why accounting is important Identify the different types of business and how they are affected by accounting Have students summarize what they learned. What did you learn?