1. Financial Accounting

2. Accounting Measures Processes Communicates…… Financial information to decision makers

3. Decision Makers Individuals Businesses Investors Creditors Taxing Authorities

4. Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business for outside users. Financial Accounting

5. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to- day operations and in planning future operations. Managerial Accounting

6. Accounting Cycle

7. 7 Flow of Accounting Data Transaction Occurs Source Documents Prepared Transaction Analyzed Transaction Journalized & Posted

8. Transaction An event that affects the financial position of a particular entity and can be recorded reliably

9. 9 Journalizing Transactions Record transaction in journal, including a brief explanation

10. 10 Journal Chronological record of the transactions

11. 11 Posting Posting – copying amounts from the journal to the ledger Periodically, journal entries are posted to ledger accounts to determine balances in each account

12. Ledger A group of accounts for a business entity

13. 13 Flow of Accounting Data Balances Totaled Unadjusted Trial Balance Adjusting Journal Entries Posted Adjusted Trial Balance

14. 14 Trial Balance List of all accounts with their balances

15. 15 Flow of Accounting Data Financial Statements Closing Entries Posted Closing Trial Balance

16. Structure of Accounting

17. 17 Account Basic summary device Detailed record of increases and decreases in specific assets, liabilities, or owner’s equity during a period

18. 18 Account Types Accounts are grouped in 3 broad categories: Assets Liabilities Owner’s Equity

19. Assets = Liabilities + Owner’s Equity The resources owned by a business that have future value The Accounting Equation

20. Assets Economic resources, expected to benefit the business in the future Cash Accounts receivable Merchandise inventory Furniture Land

21. The rights of the creditors, which represent debts of the business Assets = Liabilities + Owner’s Equity The Accounting Equation

22. Liabilities Economic obligations payable to an individual or organization outside the business Accounts payable Notes payable Salary payable

23. The rights of the owners Assets = Liabilities + Owner’s Equity The Accounting Equation

24. Owner’s Equity Claim of business owner to the assets of the business Capital Withdrawals Revenues Expenses

25. Revenues Amounts earned by delivering goods or services to customers Sales revenue Service revenue Interest revenue Dividend revenue

26. Expenses Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers Salary expense Rent expense Utilities expense Interest expense

27. Capital Varies in structure with the type of business: Sole Proprietorship Partnership Corporation

28. Sole Proprietorship One owner Not a separate legal entity Not a separate tax entity Unlimited Liability Accounts used: “Capital” “Draw” or “Withdrawal”

29. 1-29 Partnership Two or more owners Not a separate legal entity Not a separate tax entity Unlimited Liability Accounts used: “Capital” for each partner “Draw” or “Withdrawal” for each partner

30. 1-30 Corporation One or more owners Separate legal entity Separate tax entity Limited Liability Accounts used: “Paid in Capital” for owners’ investments “Retained Earnings” for operational profit/loss

31. Assets = Liabilities + Owner’s Equity Owner’s Equity Assets - Liabilities = Owner’s Equity