Introduction to Accounting 8 th grade Mrs. Stovall.

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Presentation transcript:

Introduction to Accounting 8 th grade Mrs. Stovall

What is accounting? The system of recording and summarizing financial transactions and analyzing, verifying, and reporting the results webster.com/dictionary/accounting

Who uses accounting? Everyone! Businesses use accounting information to run the business Investors use it to make decisions about whether to buy a company’s stocks Creditors use it to make decisions about whether to loan money to a company IRS use it to determine how much taxes the company must pay Customers use the information to determine which company to purchase products or services from (you want a company that is going to be around in the future)

Key Terms Assets – things you own Liabilities – a debt or obligation (money owed) Owner’s Equity – the amount of the initial investment plus retained earnings (savings). Income – a monetary gain (usually from the sale of products or service) Expenses – financial burdens; cost

Debits and Credits Analyzing and Recording Business Transactions Setting up and organizing a chart of accounts.

Business Transactions 1 Owner invests cash in a business. 2 Owner buys business assets. 3 Services are performed and cash received. 4 Services are performed and billed to customers as accounts receivable. 5 Business expenses are incurred and paid for with cash or paid for later.

Documenting Business Transactions Analyze events (transactions) Decide which accounts are affected. Choose the account category. Determine whether the event will cause an increase or decrease to the account. Record the transaction with proper debits and credits.

Debits and Credits Every transaction must be recorded. Every transaction must affect at least two accounts. Debits must equal credits. The accounting equation must be in balance.

T-accounts A T account is a format used to show the effect of transactions. Dollar signs ($) are not used in accounts. T account Left Right Debit Credit

The Ledger Account Account: Cash Balance DateDebitCreditDebitcredit June 15,000

Debits and Credits What is the definition of debit? The left side of any T account. A number entered on the left side of any account is said to be debited to an account. What is the definition of credit? The right side of any T account. A number entered on the right side of any account is said to be credited to an account.

Debits and Credits ___________Account Name (Title)___ Left side/Dr. (debit) __________Account Name (Title)____ Right side/Cr. (credit)

Financial Statements Balance Sheet – An official financial statement that includes the company’s assets and liabilities. It determine the value of the company by subtracting liabilities from assets. Income Statement – A financial statement of a company’s operation. Shows a company’s income, expenses, and income for a period of time. Shows the company’s profit or loss for a given period of time. Amount earned or lost over a period of time.

Formulas Assets = Liabilities + Owner Equity Income-Expenses = Net Income or Net Loss Total Income = Sales & Interest Income Total Expenses = all expenses Money In – Money Out = Money remaining (savings, future expenses)

BCSIII- Accounting Unit Essential Questions What are debits? Credits? What are the basic account types? What is an Income Statement? What is a Balance Sheet?