How can values be expressed in multiple ways? Accounting Week 1 What basic math skills are necessary for success in accounting and finance? How does one determine the appropriate mathematical to use for various business situation? How can values be expressed in multiple ways? How does one calculate the total amount due for a loan or a purchase? What is Accounting? What is the Accounting Equation?

Business Entity Concept The Accounting Equation Accounting Accounting System Accounting Records Service Business Proprietorship Asset Equities Liability Owner’s Equity Accounting Equation Business Entity Concept

Doesn’t have to be paid off, could still be making payments Assets Liabilities Owner’s Equity Items OWNED by a business that will provide future benefits. Probable future outflow of assets as a result of a past transaction or even. Amount by which the business assets exceed the business liabilities. Doesn’t have to be paid off, could still be making payments In other words, debts or obligations of the business that can be paid with cash, goods, or services “Net Worth” or “Capital” CASH MERCHANDISE FURNITURE FIXTURES MACHINERY BUILDINGS LAND Accounts Receivable Once the debts are paid, the remaining assets belong to the owner (Owner’s Equity). NOTES PAYABLE ACCOUNTS PAYABLE

Doesn’t have to be paid off, could still be making payments Assets Items OWNED by a business that will provide future benefits. Accounts Receivable Doesn’t have to be paid off, could still be making payments The amount of money owed to the business by its customers As a result of making sales “on account” or “on credit” Simply, customers who have promised to pay sometime in the future CASH MERCHANDISE FURNITURE FIXTURES MACHINERY BUILDINGS LAND Accounts Receivable

Liabilities Notes Payable Probable future outflow of assets as a result of a past transaction or even. Formal written promises to pay suppliers or lenders Specific sums of money at definite future times In other words, debts or obligations of the business that can be paid with cash, goods, or services NOTES PAYABLE ACCOUNTS PAYABLE Accounts Payable Unwritten promise to pay a supplier for assets purchased or services rendered Referred to as making a purchase “on account” or “on credit” Be careful!! Don’t confuse Accounts Receivable and Accounts Payable. Ask yourself, are we waiting to receive? Or waiting to pay?

BUSINESS ENTITY CONCEPT  In accounting we treat a business or an organization and its owners as two separately identifiable parties. Owner may have business assets and liabilities and nonbusiness assets and liabilities Nonbusiness assets and liabilities are not included in the entity’s accounting records If owner invests money or other assets in the business, the item is now a business asset

BUSINESS TRANSACTION An economic event that has a direct impact on the business Usually requires an exchange with an outside entity Must be able to measure this exchange in dollars All transactions affect the accounting equation through specific accounts

ANALYZING BUSINESS TRANSACTIONS THREE QUESTIONS: What Happened? Which accounts are affected? How is the Accounting Equation affected?

Cash & Capital (Accounts) Assets & Owner’s Equity Let’s Analyze Mary Adams Consulting MARY ADAMS, THE OWNER, INVESTED $25,000 IN THE BUSINESS Question #1: What Happened? Question #2: Identify Accounts that are Affected/Classify the Accounts Question #3: Determine whether the accounts have increased or decreased. #3 Cash & Capital Increased & Increased #1 Mary took $25,000 from her personal bank account and deposited it in a new account in the business’ name #2 Cash & Capital (Accounts) Assets & Owner’s Equity

Does accounting equation balance? + ASSETS = LIABILITIES OWNER’S EQUITY CASH = M. A.,CAPITAL +$25,000 = +$25,000

Purchased office supplies for $800 Let’s Analyze Mary Adams Consulting PURCHASED OFFICE SUPPLIES FOR $800 CASH Question #1: What Happened? Question #2: Identify Accounts that are Affected/Classify the Accounts Question #3: Determine whether the accounts have increased or decreased. #3 Office Supplies Cash Increased Decreased #1 Purchased office supplies for $800 #2 Office Supplies & Cash Assets Assets

Let’s look at the accounting Equation + ASSETS LIAB. = O. E. + CASH OFF. SUPPLIES = + +$800 -$800 = Right hand side of equation is not affected

RECEIVING CASH Transaction 1 August 1. Received cash from owner as an investment, $10,000.00.

PAYING CASH Transaction 2 August 3. Paid cash for supplies, $1,577.00. Transaction 3 August 4. Paid cash for insurance, $1,200.00. These two transactions only affected the asset side of the equation – demonstrating that you won’t always have entries on each side of the equation

TRANSACTIONS ON ACCOUNT Transaction 4 August 7. Bought supplies on account from Ling Music Supplies, $2,720.00. Transaction 5 August 11. Paid cash on account to Ling Music Supplies, $1,360.00.