1. Introduction to Accounting

2. What is Accounting?  The process of recording, analyzing and interpreting the economic activities of a business  Any business activity that involves money is recorded as a transaction Exchanging something of value for something else that has value  Bookkeeping The recording of all business transactions

3. Accounting and You  Individuals must keep accurate accounting records too  You should record your cheques, debit card transactions to ensure you don’t overdraw your bank account  Pre-authorized Payment Giving permission for someone else to take money from your account on a regular basis, e.g. utilities

4. Asset  Something that is owned and has value e.g. bicycle, cell phone, computer  Even if you still owe money on the asset, you still own it

5. Liability  Debts or amounts that are owed to others  Common for large purchases such as cars, houses where the entire amount can’t be paid in cash

6. Personal Equity or Net Worth  The amount you would have left after all your debts (or liabilities) are paid Net Worth = Assets - Liabilities

7. Accounting and Business  Businesses also have assets and liabilities that can be used to calculate net worth  Owner’s equity The net worth of a business = Assets - Liabilities

8. Fundamental Accounting Equation Owner’s Equity = Assets – Liabilities  Can also be rearranged to highlight assets or liabilities Assets = Owner’s Equity + Liabilities or Liabilities = Assets – Owner’s Equity

9. Company Profit  Helpful to calculate how much money the business made

10. Terminology Net Income  The difference between revenue and expenses Revenue  The money a business receives for the products or services it sells Expenses  Expenditures that help a business earn revenue e.g. utilities, telephone

11. Profit and Loss Profit  When a business’s revenues are greater than its expenses Loss  When a business’s expenses are greater than its revenues

12. Using Financial Information  Preparing reports regularly helps business owners and managers keep track of the financial health of the business  Can also communicate information about a business to outsiders that have an interest in the business such as bankers, the government  Usually compare current year with previous year to identify changes

13. Using Financial Info continued…  Analyzing helps to determine what needs to be changed and/or improved and what strategies are working  Useful to analyze current and prior year’s: Net income (profit) Revenue and expenses Owner’s equity (net worth of company)

14. Who is Interested in Financial Information?  Creditors Banks, credit unions  Owners of the Business  Investors (current and potential)  Government