1. Presentation
Gb530
Session 1
Review of Accounting

2. Five Categories of Accounts
A start to forensic accounting is to remember that a company has only five categories of accounts.
Asset. A financial resource.
Liability. A debt or obligation to pay a claim.
Equity (capital). A source of assets from owners or policyholders and retained earnings from prior profits.
Revenue. An inflow of assets, not limited to cash, in exchange for coverage or services rendered.
Expense. A consumption of any asset while conducting business, whether in cash or the reduction of asset value through non-cash means.

3. Debit and Credit
A debit is one entry and a credit is an offsetting entry. Debits equal credits.

4. Electronic Debit and Credit
A debit is shown by a plus. A credit is shown by a minus. The total of debits and credits equal zero.

5. Transaction
For every entry, debits must equal credits. In an electronic format, debits and credits must total zero.

6. Question
An account shows a debit (+) entry of $10,000. Is the entry the same as a cash inflow?

7. Answer
No. A debit (+) entry of $10,000 is not cash. It increases asset accounts. It increases expense accounts. It decreases liabilities, capital, and revenues.

8. Answer
No. A debit (+) entry of $10,000 is not cash. It increases asset accounts. It increases expense accounts. It decreases liabilities, capital, and revenues. What?

9. Question
A company buy a car for $35,000. It puts $15,000 as a down payment. What is the accounting entry?

10. Question
Entry to buy a car for $35,000 with a $20,000 loan. Car (asset) (debit) +35,000 Cash (asset) (credit) -15,000 Loan (Liab) (credit) -20,000

11. Question
A car salesman sells a car for $35,000 with $15,000 paid in cash. What is the entry?

12. Question
Entry to sell a car for $35,000 with a $20,000 loan. Credit car (asset) -35,000 Debit cash (asset) +15,000 Debit car loan (Liab) +20,000

13. Balance Sheet
A balance sheet shows the financial position as of the close of the last day in an accounting period. It involves three accounts so that the following is true:
Assets = liabilities + equity

14. Question
When does the balance sheet balance? That is, when do Assets = liabilities + equity?

15. Answer
The balance sheet balances only at the start and end of a period. In between, the total of assets, liabilities, equity, revenues, and expenses total to zero electronically or debits equal credits. Assets = liabilities + equity

16. Question
How are profits or losses carried over from one period to the next?

17. Answer
Revenues and expenses are closed to equity at the end of an accounting period. The income statement starts from zero in the new period.

18. Question
How are assets, liabilities, and capital carried over from one period to the next?

19. Answer
After the capital account is closed with revenues and expenses, the ending balances from one period are the starting balances for the next period.

20. An account is titled “Taxes Owed.” What category of account is it?
Question
An account is titled “Taxes Owed.” What category of account is it?
Asset
Liability
Equity (capital)
Revenue
Expense

21. Question
An account is titled “Prepaid expenses.” What category of account is it?
Asset
Liability
Equity (capital)
Revenue
Expense

22. Question
An account is titled “Accrued payables.” What category of account is it?
Asset
Liability
Equity (capital)
Revenue
Expense

23. Congratulations