CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning What is accounting? The planning, recording, analyzing, and interpreting of financial information. Why is an accounting background important for a career in business? Business executives must understand the financial position/well being of a company in order to make informed business decisions 1 LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Types of jobs in accounting General office worker Accounting clerks Bookkeepers CPA – certified public accountant 150 college credits 2 years experience and a test Given twice a year; four parts – 1. business law, 2. audit, 3. tax, non-profit, and cost accounting, 4. financial accounting 2 LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Governing bodies AICPA – American Institute of Certified Public Accountants (professional association) PICPA – Pennsylvania Institute of Certified Public Accountants GAAP – Generally Accepted Accounting Principles Set the rules, principle, and guidelines accountants follow FASB – Financial Accounting Standards Board Create the broad accounting concepts and standards for financial reporting SEC – Securities and Exchange Commission 3 LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Demand for accountants What do you think the demand is? Why? US Patriot Act, 2001 Because of terrorist attacks, 9/11 – greater study of cash flow Sarbanes -Oxley Act, 2002 More audit requirements because of Enron Forensic Accounting 4 LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Skills/qualities of an accountant Skills Communication skills Detail oriented Computer skills Math skills Organizational skills Critical thinking skills Good ethics/morals Qualities Dependable Positive attitude Desire to help Friendly 5 LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-1 The Accounting Equation Focus question: How do transactions in a business affect the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 1-1 THE ACCOUNTING EQUATION Assets = Liabilities + Owner’s Equity Anything Owned Any Amount Owed Owners Investment in the Company

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Anything of value that is owned by the entity.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 ASSETS are the RESOURCES OWNED BY A BUSINESS. Here are some types of assets that might be owned by a business company: Land Equipment Buildings Cash Vehicles Store Supplies Notes Receivable Accounts Receivable ASSETS

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Land Computer Vehicle Cash Examples

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Liabilities

An amount the business owes.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 Creditors are the people or companies to whom a business owes something (like money). Here are some types of liabilities that a company might owe: Taxes Payable Wages Payable Notes Payable Accounts Payable LIABILITIES LIABILITIES are the CREDITOR’S CLAIMS ON ASSETS.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The most common liability is a loan. Another common liability is called creditors. A creditor, also known as a payable, is any business or person (apart from the bank) that you owe. Suppliers (who you owe for products purchased on credit) would fall under creditors.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The amount remaining after deducting all liabilities from the assets.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning In other words…

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Represents the value of the assets that the owner can lay claim to. The value of all the assets after deducting the value of assets needed to pay liabilities. It is the value of the assets that the owner really owns.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning THE ACCOUNTING EQUATION MUST ALWAYS BE IN BALANCE!!! 18 LESSON 1-1 page 8

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 19 LESSON 1-1 TERMS REVIEW accounting accounting system accounting records financial statements service business proprietorship asset equities liability owner’s equity accounting equation ethics business ethics page 9

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-2 How Business Activities Change the Accounting Equation Focus question: How do transactions affect accounts in the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 21 LESSON 1-2 RECEIVING CASH Transaction 1 August 1. Received cash from owner as an investment, $5, page 10 1.Read the transaction. 2.Identify the accounts affected. 3.Classify the accounts affected.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 22 LESSON 1-2 PAYING CASH Transaction 2 August 3. Paid cash for supplies, $ page 11 A transaction does not always require than an amount be recorded on both sides of the equation…equation remains in balance. One asset is being exchanged for another.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 1-2 Transaction 3 August 4. Paid cash for insurance, $1, Insurance policy – something of value own by TechKnow

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 24 LESSON 1-2 TRANSACTIONS ON ACCOUNT Transaction 4 August 7. Bought supplies on account from Supply Depot, $ page 12 It is common business practice to buy items and pay for them at a later date (bought on account).

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 26 LESSON 1-2 TERMS REVIEW transaction account account title account balance capital page 13

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Focus question: How do transactions affect accounts in the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 28 LESSON 1-3 REVENUE TRANSACTIONS Transaction 6 August 12. Received cash from sales, $ page 14 What accounts are affected? Are they increased or decreased? Revenue – increase in OE resulting from the operation of a business.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning REVENUE TRANSACTIONS 29 LESSON 1-3 What accounts are affected? Are they increased or decreased? Sale on account – sale for which cash will be received at a later date.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 30 LESSON 1-3 EXPENSE TRANSACTIONS Transaction 8 August 12. Paid cash for rent, $ page 15 What accounts are affected? Are they increased or decreased? Expense – decrease in OE resulting from the operation of a business.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 31 LESSON 1-3 What accounts are affected? Are they increased or decreased?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 32 LESSON 1-3 OTHER CASH TRANSACTIONS Transaction 10 August 18. Received cash on account from Oakdale School, $ page 16 OE is not affected when cash is received on account. Why?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 33 LESSON 1-3 What is the difference between an expense and a withdrawal? Both decrease OE, but a withdrawal is not an expense because it is not a result of normal business operations.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 34 LESSON 1-3 Two things that Increase the Owners Equity account: 1. Investments 2. Revenue Two things that Decrease the Owners Equity account: 1. Expenses 2. Withdrawals

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 35 LESSON 1-3 TERMS REVIEW revenue sale on account expense withdrawals page 17