1. Basic Accounting Concepts AA Roundup May 30, 2007

2. What is Accounting? Accounting is a process by which financial activities are organized, recorded, analyzed and transformed into information in a consistent manner. Financial activities (Transactions) Accounting Processes, Internal Controls & Procedures Financial Reports

3. Uses & Purpose of Accounting Uses at Home Review accuracy of bank statements Verify your credit card bills Make household expenses, pay bills Uses at Work Track hours worked Order supplies Pay items ordered Take student payments It is used by everyone at home and at work The purpose of Accounting is to provide information to help you analyze the financial situation of the company or household

4. Accounting Equation Assets = Liabilities + Fund Balance (General Ledger) (Revenue – Expenses) (Operating Ledger)

5. Double-Entry System Assets = Liabilities+ Fund Balance (Revenues – Expenses) Received Food Services Revenue for $100.00 + 100.00 (Cash) + 100.00 (Food Service Revenue) Received Cash for Student Tuition for $500 + 500.00 (Cash) - 500.00 (Accts Receivable) Paid for expenses owed to vendors -300.00 (Cash) -300.00 (Accts Payable) Every transaction must be two sided to keep the accounting equation in balance

6. Assets, Liabilities & Fund Balance Assets – anything that is owned by the company and has money value Liabilities – everything the company owes to others Fund Balance (Equity) – represents how much really belongs to the company and is not owed to someone else.

7. Ledgers Assets = Liabilities + Fund Balance (General Ledger) (Revenue – Expenses) (Operating Ledger) General Ledger keeps track of all the company’s assets, liabilities and fund balance accounts. Operating Ledger keeps track of the company’s revenue and expense accounts. - At STC, most department organizations reflect expense accounts. Revenues are recorded in separate organizations.

8. Debits & Credits System Used to keep the accounting equation in balance; every transaction has an equal debit and credit entry. A debit and a credit act as an addition or subtraction depending on the type of account. Debits – used to increase the value of an assets, to increase an expense, to reduce revenue or a liability account Credits – used to increase a liability or revenue, to decrease an expense and an asset account

9. Debits & Credits Rules AssetsLiabilities & Fund Balance DebitsCreditsDebitsCredits Increases (+) Decreases (-) Decreases (-) Increases (+) ExpensesRevenues DebitsCreditsDebitsCredits Increases (+) Decreases (-) Decreases (-) Increases (+) Increases = normal balance of account group

10. T-Accounts Used in traditional manual accounting to analyze the two sided (debit & credit) posting of transactions Account DebitCredit

11. Normal Balance – Activity # 1 AccountAssetLiabilityExpenseRevenue Cash Tuition Revenue Food Service Revenue Accounts Payable Fees Revenue Loans Receivable Salaries Paid Food Purchases Accounts Receivable Supplies Expense

12. Normal Balance – Activity # 1 AccountAssetLiabilityExpenseRevenue CashD Tuition RevenueC Food Service RevenueC Accounts PayableC Fees RevenueC Loans ReceivableD Salaries PaidD Food PurchasesD Accounts ReceivableD Supplies ExpenseD

13. Cash vs. Accrual Basis Accounting Cash Accounting – transactions are recorded only when cash is involved.  Example: a purchase is recorded when the items are paid. Supplies ExpenseCash xxx Accrual Accounting – transactions are recorded as they happen, even if no cash is involved.  Example: a purchase is recorded when the items are ordered. When OrderWhen Paid Supplies ExpenseAccounts Payable Cash xxx

14. Financial Statements Financial Statements are the main result of Accounting. The most common statements include:  Balance Sheet – reports ending balance of assets, liabilities and fund balance accounts at a point of time (example: as of 8/31/07).  Income Statement – reports cumulative revenue and expense transactions for a period of time (example: Sept – Aug)  Cash Flow – reports uses and sources of cash

15. Calendar vs. Fiscal Year Calendar Year runs: Fiscal Year runs: January 1 st – December 31 st September 1 st – August 31 st Calendar YearCalendar MonthFiscal YearFiscal Period 200509200601 200510200602 200511200603 200512200604 200601200605 200602200606 200603200607 200604200608 200605200609 200606200610 200607200611 200608200612 200609200701 200610200702 200611200703 200612200704

16. Posting Transactions Activity Student ReceivableTuition & Fee Rev $600 In-State Travel ExpAccounts Payable $300 Student ReceivableCash $35 Subscription ExpAccounts Payable $100 Accounts PayableCash $100 CashSubscription Exp $15 1)Student Registers for classes ($600) 2) Student pays registration fee ($35) 3) Order magazine subscription ($100) 4) Pay invoice for magazine subscription ($100) 5) Received refund for magazine subscription ($15) 6) Book in state travel ($300)

17. Posting to Account Groups Assets =Liabilities+ Fund BalRevenues- Expenses 1)600 2)(35) 35 3)100 4)(100) 5)15(15) 6)300 515300215600385

18. Closing the Periods When periods are closed, the net of revenues and expenditures is added (or decreased) to the fund balance account. Revenue – Expenses Income Statement $600 - $385 = $215 Fund Balance Beginning Balance as of 9/1/06$ 0 Increase (Decrease) to Fund Balance$ 215 Ending Balance as of 8/31/07$ 215 Assets = Liabilities + Fund Balance Balance Sheet $ 515 = $300 + $215

19. Balance Sheet ASSETS Cash(50) Student Receivable565 TOTAL ASSETS$515 LIABILITIES Accounts Payable300 TOTAL LIABILITIES$300 FUND BALANCE$215

20. Income Statement REVENUES Tuition and fees600 TOTAL REVENUES$600 EXPENSES Subscription expense85 In-state travel300 TOTAL EXPENSES$385 Increase (Decrease) to Fund Balance215 Fund Balance, Beginning of Year0 Fund Balance, End of Year$215

21. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2) 3) 4) 5) 6)

22. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3) 4) 5) 6)

23. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3)800 4) 5) 6)

24. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3)800 4)(600) 5) 6)

25. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3)800 4)(600) 5)400 6)

26. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3)800 4)(600) 5)400 6)150(150)

27. Activity # 3 Assets =Liabilities+ Fund BalRevenues- Expenses 1)2,000 2)1,800 (1,800) 3)800 4)(600) 5)400 6)150(150) 1,5502001,3502,4001,050

28. Questions?