1. Accounting Standard 8
Understand, interpret, and use accounting principles to make financial decisions.

2. What is accounting? Every business has to use accounting principles.
It’s the language of business….
Definition of accounting-
Planning, recording, analyzing, and interpreting financial information.
Every business has to use accounting principles.

3. Then it starts over again
Then the cycle begins again for the new period of time. Usually a month, but could be for a quarter (three months) or a year.

4. Collect and Verify Source Documents
Step 1
Collect and Verify Source Documents
Source documents are the evidence that a transaction or event happened in the business
Types:
Invoice
Check Stub
Receipt
Memorandum
Source documents are the evidence that a transaction or event happened in the business. The types of sources documents are Invoices, Check stubs, Receipts, Memonrandom

5. Analyze each transaction
Step 2
Analyze each transaction
1. Determine accounts effected
2. Determine account type
3. Determine increase or decrease
4. Determine debit(s) and credit(s)
The four steps involved in analyzing the transaction are :
Determine accounts effected (cash, supplies, accounts payable, etc)
Determine account type (asset, liability, or owner’s equity) **good spot to ask what they have written down for the definition of these on their index card.
For each account ask is it increasing or decreasing
Based on the type and whether it is increased or decreased: determine which accounts are increased or decreased

6. Part of step 2 Debits and credits
Here's a Tip-- Debit means left Credit means right
Generally these types of accounts are increased with a debit:
Dividends (Draws) Expenses Assets Losses
Generally these types of accounts are increased with a credit:
Gains Income Revenues Liabilities Stockholders' (Owner's) Equity

7. Step 3 Journalize each transaction
businesses record all activity that happens in their business each day in a journal.
1.Date
2.Account Debited
3.Amount Debited
4.Account Credited (indent slightly)
5.Amount credited
The journal is like a diary of the business’ activities. Just like you would record everything that happens to you in your diary for the day, businesses record all activity that happens in their business each day in a journal.

8. Sample of Journal

9. Post to the ledger Step 4 Record for each individual account.
Each account has it’s own ledger. That is just an individual record for that account. So all the transactions that effect the Cash account would be posted (recorded) into the Cash account.
Each account has it’s own ledger. That is just an individual record for that account. So all the transactions that effect the Cash account would be posted (recorded) into the Cash account.

10. Sample of Ledger

11. Prepare a Trial Balance
Step 5
Prepare a Trial Balance
This is to ensure that the accounting equation is still in balance. It is a listing of all the accounts and their balances.
You add the debit balances, then the credit balances, and then check to make sure that they are equal. It is completed in the first columns of the worksheet, but must balance before the rest of the worksheet is completed.
Next you prepare a trial balance. This is to ensure that the accounting equation is still in balance. It is a listing of all the accounts and their balances. You add the debit balances, then the credit balances, and then check to make sure that they are equal. It is completed in the first columns of the worksheet, but must balance before the rest of the worksheet is completed.

12. Sample trial Balance

13. Step 6 Prepare a Worksheet
The worksheet is where you gather all the information needed to prepare the financial statements.
Some accounts need to be adjusted to bring their balances current before the financial statements are completed.
The worksheet is where you gather all the information needed to prepare the financial statements like the one we looked at when we started this unit. Some accounts need to be adjusted to bring their balances current before the financial statements are completed.

14. Sample worksheet

15. Step 7 Prepare the financial statements
The Income Statement - shows how much money the business has made (or lost) during a period of time.
2. The Statement of Owner’s Equity - a report for the owner of the business to show how the business operations have effected his/her investment during a time period.
3. The Balance Sheet makes sure that the debits equal the credits at a point in time.
Once the worksheet is complete you are ready to prepare the financial statements. These include the Income statement, a Statement of Owner’s Equity, and a Balance Sheet.
The Income Statement show how much money the business has made (or lost) during a period of time.
The Statement of Owner’s Equity is a report for the owner of the business to show how the business operations have effected his/her investment during a time period.
The Balance Sheet makes sure that the debits equal the credits at a point in time. Checks to make sure the accounting equation is still in balance.

16. Step 8 Journalize and Post the closing entries
During the accounting period the revenue, expense, and drawing accounts are used to itemize those transactions to assist management in making decisions on how the business is running. At the end of the accounting period these accounts which are classified as temporary accounts are closed and their balances are transferred (moved) into the owner’s capital account (where the equity is tracked).

17. Step 9
Prepare a Post-Closing Trial Balance This is just to make sure that all the debits equal all the credits are still equal and that the accounting equation is in balance before the next time period begins.
The last step is to prepare a Post-Closing Trial Balance. This is just to make sure that all the debits equal all the credits are still equal and that the accounting equation is in balance before the next time period begins.

18. Understanding Financial Statements

19. Balance Sheet What is a Balance Sheet? A statement that shows
(1) How much money a company has
(2) How much money a company owes
(3) How much the company is worth (value of company)
Follows the accounting equation
Assets = Liabilities + Owner’s Equity

20. Sample Balance Sheet

21. Label the Balance Sheet

22. Label the Balance Sheet
1. Company Name
Balance Sheet
Date

23. Label the Balance Sheet
1. Company Name
Balance Sheet
Date
2. Total Assets – how much you have

24. Label the Balance Sheet
1. Company Name
Balance Sheet
Date
3. Total Liabilities – how much you owe
2. Total Assets – how much you have

25. Label the Balance Sheet
1. Company Name
Balance Sheet
Date
3. Total Liabilities – how much you owe
4. Owner’s Equity– how much you are worth
2. Total Assets – how much you have

26. C heck Point….
You make $400 (after taxes) and you owe $275 in bills. What is your worth?
$400 (asset) - $275 (liability)= $125 (worth)

27. Income Statement What is an Income Statement?
A statement that shows a company’s profit.
How much was sold or made? ( revenue)
How much was spent? (expense)
How much is left over? (net income/profit)
Revenue – Expenses = Net Income/Loss

28. Sample Income Statement

29. Label the Income Statement
1. Company Name
Income Statement
Date

30. Sample Income Statement
1. Company Name
Income Statement
Date
2. Total Revenue - how much was sold

31. Sample Income Statement
1. Company Name
Income Statement
Date
2. Total Revenue - how much was sold
3. Total Expenses - how much was spent

32. Sample Income Statement
1. Company Name
Income Statement
Date
2. Total Revenue - how much was sold
3. Total Expenses - how much was spent
4. Net Income/Loss- how much profit

33. C heck Point…. You have $5000 in sales
Your company had $1200 in expenses
Did you have a Net Income or Loss? What was the amount?
Revenue $5000 – Expenses $1200 = Net Income $3800

34. Review…. What accounts would you find listed on the balance sheet?
Assets
Liabilities
Owner’s Equity

35. Review….
What is the term used for how much you owe?
Liability

36. Review…. How do you calculate how much you are worth?
Assets – Liabilities = Owner’s Equity (worth)

37. Review….
What financial statement shows how much profit you made and how is this calculated?
Income Statement
Revenue - Expenses

38. Lesson 1-3
11/27/2018
LESSON 1-3
How Transactions Change Owner’s Equity in an Accounting Equation

39. page 14
REVENUE TRANSACTIONS
Transaction 6 August 12. Received cash from sales, $
Transaction 7 August 12. Sold services on account to Oakdale School, $
LESSON 1-3

40. page 15
EXPENSE TRANSACTIONS
Transaction 8 August 12. Paid cash for rent, $
Transaction 9 August 12. Paid cash for telephone bill, $40.00.
LESSON 1-3

41. OTHER CASH TRANSACTIONS
page 16
OTHER CASH TRANSACTIONS
Transaction 10 August 12. Received cash on account from Oakdale School, $
Transaction 11 August 12. Paid cash to owner for personal use, $
LESSON 1-3

42. TERMS REVIEW revenue sale on account expense withdrawals page 17
Lesson 1-3
11/27/2018
page 17
TERMS REVIEW
revenue
sale on account
expense
withdrawals
LESSON 1-3