What is Accounting? 1-1

“The Language of Business” Accounting: planning, recording, analyzing, and interpreting financial info Accounting System: a planned process of providing financial info that will be useful to management Accounting Records: organized summaries of a business’s financial activities

Who Uses Accounting? Business owners Managers Accounting personnel Investors Bankers Individuals

What Can Inaccurate Accounting Records Lead To? Business failure Bankruptcy Poor business decisions

TechKnow Consulting(pg3) Service Business: one that performs an activity for a fee Proprietorship: a business owned by one person GAAP Concept Business Entity: Financial information is recorded and reported separately from the owner’s financial info

Types of Accounts Asset: Equities: Anything of value that is owned Financial rights to the assets of a business 2 types: Liabilities An amount owed by a business Owner’s Equity The owner’s right to the assets Amount remaining after the value of the liabilities is subtracted from the value of all the assets

Assets = Liabilities + Owner’s Equity Accounting Equation Shows the relationship among assets, liabilities, and owner’s equity Assets = Liabilities + Owner’s Equity The Accounting Equation MUST be in BALANCE to be correct.

How Business Activities Change the Accounting Equation 1-2

Vocab Transaction: activity that changes assets, liabilities, or owner’s equity EX paying cash for insurance After each accounting equation must remain in balance!!!! Account: a record summarizing all the information about 1 item in the accounting equation Cash, Prepaid Insurance, Acct. Pay.-Joe’s Movie House

More Vocab Account Title: the name given to an account Account Balance: the amount in the account Capital: the account used to summarize the owner’s equity in a business Owner’s Name, Capital

GAAP Unit of Measure: Business transactions are stated in numbers that have common values; that is using a common unit of measure Example Pg 10 $ to $ NO hours to $

Common Business Transactions Receiving Cash Aug 1--Received cash from owner as an investment, $5,000 Increases Cash, Increases O.E. Paying Cash Aug 3--Paid Cash for Supplies, $275 Decrease Cash, Increase supplies Aug 3--Paid cash for Insurance, $1,200 Decrease Cash, Increase Insurance

Transactions on Account Bought Supplies on Account Aug 7--Bought supplies on account from the Supply Depot, $500 Increase Supplies Increase Supply Depot Paid Cash on Account Aug 11--Paid cash on account to Supply Depot, $300 Decrease Cash Decrease Supply Depot

How Transactions Change Owner’s Equity in an Accounting Equation Lesson 1-3

Vocab Revenue—increase in owner’s equity resulting from the operation of a business Sale 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 business Withdrawal—assets taken out of the business for the owner’s personal use

GAAP Concept Realization of Revenue: Revenue is recorded at the time goods and services are sold, regardless of when paid. --sales on account

Revenue Transactions Received Cash from Sales Sold Services on Account Aug. 12, Received cash from sales, $295 Increase cash Increase O.E. Sold Services on Account Aug. 12, Sold services on account to Oakland School, $350. Increase Accts. Rec. Increase O.E.

Expense Transactions Paid cash for rent, telephone bill, advertising, etc. Aug. 12, Paid cash for rent, $300 Decrease cash Decrease O.E.

Other Cash Transactions Received Cash on Account Aug. 12, Received cash on account from Oakdale school Increase cash Decrease Accts. Rec. Paid cash to Owner for Personal Use Aug. 12, Paid cash to owner for personal use, $125 Decrease cash Decrease O.E.