1. Chapter 9: Accounting Day 1: Introduction to Accounting

2. Today’s Response Journal
What items does your family own that have value to them? What items/money does your family owe to other people? Make a list of each. *** Save as December 1in your Response Journal folder***

3. What is Accounting?
_____________ is the process of recording, analyzing and interpreting the economic activities of a business
Any business activity that involves ___________ is recorded as a _______________
A transaction occurs when something that has value, is exchanged for something else of value
______________ is the recording of all business transactions
Accounting
Money
Transaction
Bookkeeping

4. Preauthorized Payment
Accounting and You
Individuals, as well as businesses, must keep accurate accounting records too
You should record your all cheques you write, debit card transactions and preauthorized payments to ensure you don’t overdraw your bank account
A _________________________ occurs when you have given permission for someone else to take money from your account on a regular basis
E.g. paying your cell phone bill (Rogers, Bell, etc.)
Preauthorized Payment

5. Asset
An Asset is something that you or a business ________ that has __________
E.g. bicycle, cell phone, computer, car, house, office building, etc.
It doesn’t matter whether you purchased the item or received it as a gift, as soon as you take ownership it is considered one of your assets
Even if you still owe money on the purchased item, it is still considered to be your asset
Own
Value

6. Liability
Liabilities are _________ or amounts of money that are owed to others
Common for large purchases such as cars and houses, where the entire amount typically can’t be paid in full
Read the example in paragraph 3 on page 276
Debts

7. Personal Equity or Net Worth
Personal Equity or Net Worth is the amount of _______ you would have left over after all your _____________ (debts) are paid off
To calculate Personal Equity/Net Worth, use the below formula;
Net Worth = Assets – Liabilities
Read the example in paragraph 1 on page 277
Assets
Liabilities

8. Accounting and Business
Just like individuals, businesses also have assets and liabilities that can be used to calculate the company’s net worth
The net worth of a business is called ________________, and is calculated the same way net worth is calculated for an individual
Owner’s Equity = Assets – Liabilities
The above equation is known as the _____________________________ and can be rearranged as follows;
Assets = Owner’s Equity + Liabilities or
Liabilities = Assets – Owner’s Equity
Owner’s Equity
Fundamental Accounting Equation

9. Company Profit/Loss
It is helpful to calculate how much money a business has made or lost in a given period of time
Terminology
__________ is the money a business receives for the products or services it sells
__________ are the expenditures (things the business spends money on) that help a business earn revenue
E.g. utility bills (water, heat), telephone bill, etc.
____________ is the difference between revenue and expenses
Revenue
Expenses
Net Income

10. Company Profit/Loss
A _________ is made when a business’s revenues are greater than its expenses
A _________ occurs when a business’s expenses are greater than its revenues
Profit
Loss

11. Using Financial Information
Preparing financial reports regularly helps business owners and managers keep track of the _________________ of their company
Financial reports can also communicate information about a business to _____________ that have an interest in the business such as bankers, the government
Financial reports usually compare the current year to the previous one, in order to identify changes
Financial Health
Outsiders

12. Using Financial Info continued…
Analyzing financial reports helps to determine what needs to be changed and/or improved and what strategies are working/not working
It is useful to compare the current year’s numbers to the previous year’s. Specifically, you want to compare…
Revenue and expenses
Net income (profit or loss)
Owner’s equity (net worth of company)

13. Who is Interested in Financial Information?
Creditors
An institution, another business or person who lends the company money
E.g. Banks, credit unions, family/friends, etc.
Owners of the business
Investors (current and potential)
Government

14. Day 1 - Assigned Work Students please complete the following;
Assets and Liabilities Activity (provided to you)
Review Question #16 on page 302

15. Chapter 9: Accounting Day 2: Preparing a Balance Sheet

16. Preparing a Balance Sheet
A _________________ is used to record and summarize information about the assets, liabilities and owner’s equity of a company
A balance sheet shows the financial position of a company on a particular date
E.g. December 1, 2014
A balance sheet is like a __________; it is a snapshot of the financial history of a business at a particular moment in time
Balance Sheet
Photo

17. Step #1: Fill in the Statement Heading
The statement headings are always recorded in the same order;
Who
Name of the Company
What
Balance Sheet
When
Date

18. Step #2 – List the Assets
Assets are listed in order of _______________
Liquidity is the ease with which the asset can be converted into cash
E.g. cash requires no conversion and therefore is the first asset to be listed
_______________________, which is money owed to a business by its customers, is normally paid within 30 days, and therefore is listed second (if the company has any AR)
Liquidity
Accounts Receivable

19. Step #3 – List the Liabilities
Liabilities are listed in order by _______________; the date that they must be repaid by
E.g. Accounts Payable will likely be paid off before any loans or mortgages will be, and therefore will be listed above
_____________________ is the amount of money that a business owes to its suppliers
Maturity Date
Accounts Payable

20. Step #4 – Calculate Owner’s Equity
Calculate the business’s Owner’s Equity using the below equation (that was outlined in yesterday’s lesson)
Owner’s Equity = Assets – Liabilities

21. Step #5 – Put It All Together
If you have completed your balance sheet correctly it will ______________; meaning Total Assets will equal (be the same as) Total Liabilities & Owner’s Equity
Assets = Owner’s Equity + Liabilities
A balance sheet is considered to be a formal business document
To keep consistent formatting certain conventions of style must be followed;
Never use abbreviations
Never have corrections or changes appear on the final version
Only place $ in front of the first amount and total amount in each section (Assets, Liabilities & Owner’s Equity)
Underline when totaling a column, double underline a final total
Balance

22. Step #5 – Put It All Together

23. Day 2 – Assigned Work Students please complete the following;
Balance Sheet Activity (provided to you)

24. Chapter 9: Accounting Day 3: Preparing an Income Statement

25. Preparing an Income Statement
An __________________ is a financial statement that show whether a business made a __________ or _______
An income statement is more like a movie, as it shows what happens over a given period of time; called a _________________
A fiscal period is any period of time selected by a business that is used for financial calculations and comparisons; monthly, quarter or yearly
E.g. Month Ended November 30, 2014
Profit
Loss
Fiscal Period

26. Income Statement - Overview
It is helpful to calculate how much money a business has made or lost in a given period of time
Terminology
__________ is the money a business receives for the products or services it sells
__________ are the expenditures (things the business spends money on) that help a business earn revenue
E.g. utility bills (water, heat), telephone bill, etc.
____________ is the difference between revenue and expenses
Revenue
Expenses
Net Income

27. Company Profit/Loss
A _________ is made when a business’s revenues are greater than its expenses
A _________ occurs when a business’s expenses are greater than its revenues
Profit
Loss

28. Step #1 – Statement Heading
The statement headings are always recorded in the same order, and are very similar to the headings in the Balance Sheet
Who
Name of the Company
What
Income Statement
When
Date (stated over a period of time)

29. Step #2 – List the Revenues
List all ____________ of revenue
Many companies have more than one
Then calculate Total Revenue
Step #3 – List the Expenses
List all expenses in _____________ order
Then calculate Total Expenses
Sources
Alphabetical

30. Step #4 – Calculate Net Income (or Net Loss)
Use the totals, Total Revenue & Total Expenses, as calculated in steps 2 & 3 to calculate the Net Income of the company
Net Income (Net Loss) = Total Revenue – Total Expenses
If Total Revenue is _______________Total Expenses, then the company has made a profit
If Total Expenses are ______________ Total Revenue, then the company has made a loss
Greater Than
Less Than

31. Step #5 – Put It All Together
An income statement is also considered to be a formal business document
To keep consistent formatting certain conventions of style must be followed;
Never use abbreviations
Never have corrections or changes appear on the final version
Only place $ in front of the first amount and total amount in each section (Revenue, Expenses and Net Income/Loss)
Underline when totaling a column, double underline a final total (Net Income/Loss)

32. Step #5 – Put It All Together

33. Day 3 – Assigned Work Students please complete the following;
Review Questions #5, 6 & 8 on page 300