2. Accounting

3. How much money did a business make in a year? How much money did a business make in a year? How much can a business afford to spend on a new addition? How much can a business afford to spend on a new addition? How much will any or all of this cost? How much will any or all of this cost?

4. Important Terms Accounting - the process of recording, analyzing and interpreting the economic activities of a business Accounting - the process of recording, analyzing and interpreting the economic activities of a business Transaction – when something that has value is exchanged for something else that has value (e.g. an employee gets paid $80 for eight hours of work) Transaction – when something that has value is exchanged for something else that has value (e.g. an employee gets paid $80 for eight hours of work) Bookkeeping – is the recording of all business transactions Bookkeeping – is the recording of all business transactions

5. Business Terms Assets – something that has value and is owned by a person (can be purchased or given) Assets – something that has value and is owned by a person (can be purchased or given) Liabilities – are debts or amounts that are owed to others Liabilities – are debts or amounts that are owed to others Personal Equity or Net Worth – is what you have left if you paid off all your debts Personal Equity or Net Worth – is what you have left if you paid off all your debts assets – liabilities = net worth assets – liabilities = net worth

6. Owners Equity – the net worth for a business Owners Equity – the net worth for a business assets – liabilities = owners equity e.g. your business has $100,000 of assets and has $34,000 worth of liabilities. What is the business’ owners equity?

7. What is a balance sheet? What is a balance sheet? A financial statements used by accountants to show the financial position of that business on a particular date A financial statements used by accountants to show the financial position of that business on a particular date If the balance sheet is correct the left and right columns should add up If the balance sheet is correct the left and right columns should add up

8. Balance Sheet Equation Balance Sheet Equation Can be expressed in two ways Can be expressed in two ways 1) Assets – Liabilities = Owners Equity 1) Assets – Liabilities = Owners Equity 2) Assets = Liabilities + Owners Equity 2) Assets = Liabilities + Owners Equity

9. If you buy a $35,000 car for your business can you sell it in two years for $35,000? Why or why not? If you buy a $35,000 car for your business can you sell it in two years for $35,000? Why or why not?

10. Depreciation – assets that lose value over time Depreciation – assets that lose value over time Cost principle – assets are always recorded at the actual amount they were purchased for. Cost principle – assets are always recorded at the actual amount they were purchased for.

11. What have learned pupils? At your desks, individually try and figure out what Mark’s total assets, liabilities and what his business’ owner equity is. At your desks, individually try and figure out what Mark’s total assets, liabilities and what his business’ owner equity is. List of assets and liabilities List of assets and liabilities Cash of $6,500 Cash of $6,500 Accounts receivable $8,100 Accounts receivable $8,100 Accounts payable (debts) $7,350 Accounts payable (debts) $7,350 Supplies needed for invoicing $500 Supplies needed for invoicing $500 Parts inventory $4,000 Parts inventory $4,000 Bank loan $11,050 Bank loan $11,050 Equipment $25,000 Equipment $25,000 Mortgage on building $110,000 Mortgage on building $110,000 Building and land $175,000 Building and land $175,000

12. Answer is? Assets – Liabilities = Owners Equity $219,600 - $128,400 = $91,200 $219,600 - $128,400 = $91,200 This is to say that if Mark were to sell all his assets and pay of his liabilities he would be left with $91,200

13. How to Prepare a Balance Sheet

14. Benny’s Butchery Balance Sheet Dec 30 th, 2006 Assets Liabilities Owner’s Equity Cash$5 000 Accts recble T. Smith 250 Inventory 2 000 Equipment 9 990 Building 98 000 Acct’s Payable B. Dewey $350 bank loan 8 000 Total liabilities 8 350 Total L + OE $115 240 B.Benny, capital 106 890 Total Assets$115 240 Step 1 : create title Step 3: List assets Step 4: List liabilities Step 5: figure out O. Equity using accounting equation OE=A-L Step 6: make sure Assets=Liabilities +O Equity Step 2: Set up sheet titles

15. Line usage in accounting A single line is used when adding a subtotal A single line is used when adding a subtotal Cash $5 000 Cash $5 000 Accts receivable Accts receivable T. Smith 250 T. Smith 250 Inventory 2 000 Inventory 2 000 Equipment 9 990 Equipment 9 990 Building 98 000 Building 98 000 SINGLE LINE

16. Double Lines Are used to indicate FINAL calculations Are used to indicate FINAL calculations Total assets $115 240 Total assets $115 240 Should be 2 lines NOT one !

17. Income Statement Income statement Income statement Is another financial statement that us used to help a business calculate profit or loss on business operations Is another financial statement that us used to help a business calculate profit or loss on business operations Income statement can look at a Income statement can look at a Week Week Month Month Quarter Quarter Year Year

18. Income statements look at two things Income statements look at two things Revenue – money brought into the company Revenue – money brought into the company Expenses – money spent to make your business money Expenses – money spent to make your business money Ex. sell a cell phone for $150 and it cost $85 to make sell that phone then your net income would be $65 Ex. sell a cell phone for $150 and it cost $85 to make sell that phone then your net income would be $65 When total expenses exceed total revenue the business incurs a net loss When total expenses exceed total revenue the business incurs a net loss

19. Bennys Butchery Income Statement Month ended June 30, 2006 Revenues Expenses Sales $20000 Total Revenues20000 Salaries expense 8500 Advertising expense 300 Delivery expense 650 utilities expense 750 Total Expenses 10200 Total Income $9800 Step 1: title Step 2: put in sheet titles Step 3: do subtotals in the inner column Totals and line check!

21. What are some expenses you will have with your business? What are some expenses you will have with your business?