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Fundamentals of Accounting – Lecture Slides | ABM 111, Study notes of Agricultural engineering

Material Type: Notes; Class: Records & Business Planning I; Subject: Agriculture Business Mgmt; University: Morgan Community College; Term: Unknown 2002;

Typology: Study notes

Pre 2010

Uploaded on 08/19/2009

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üüFundamentals of AccountingFundamentals of Accounting
2
Define accounting and its Define accounting and its
function in business.function in business.
llAccounting:Accounting:
A system that measures the business’s
activities in:
financial terms
provides written reports and
financial statements about those
activities
communicates those reports to
decision makers and others.
3
Define accounting and its Define accounting and its
function in business.function in business.
Then what’s Then what’s
bookkeeping?bookkeeping?
4
Define accounting and its Define accounting and its
function in business.function in business.
llBookkeepingBookkeeping:
The recording
function of the
accounting
process.
5
Define accounting and its Define accounting and its
function in business.function in business.
llAccounting CycleAccounting Cycle: For each
accounting period, the process that
begins with the recording of business
transactions or procedures into a journal
and ends with the completion of a post
closing trial balance.
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Define accounting and its Define accounting and its
function in business.function in business.
llDoubleDouble--entry bookkeepingentry bookkeeping: An accounting
system in which the recording of each
transaction affects two or more accounts and
the total of the debits is equal to the total of the
credits.
lSingle-entry bookkeeping:An accounting
system in which the recording of each
transaction affects only one account as in the
case of a ledger book.
pf3
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¸¸Fundamentals of AccountingFundamentals of Accounting

2

Define accounting and itsDefine accounting and its

function in business.function in business.

ll Accounting:Accounting: A system that measures the business’s activities in:

  • financial terms
  • provides written reports and financial statements about those activities
  • communicates those reports to decision makers and others.

3

Define accounting and itsDefine accounting and its

function in business.function in business.

Then what’sThen what’s

bookkeeping?bookkeeping?

4

Define accounting and itsDefine accounting and its

function in business.function in business.

ll BookkeepingBookkeeping: The recording function of the accounting process.

5

Define accounting and itsDefine accounting and its

function in business.function in business.

ll Accounting CycleAccounting Cycle: For each accounting period, the process that begins with the recording of business transactions or procedures into a journal and ends with the completion of a post closing trial balance.

6

Define accounting and itsDefine accounting and its

function in business.function in business.

ll DoubleDouble--entry bookkeepingentry bookkeeping: An accounting system in which the recording of each transaction affects two or more accounts and the total of the debits is equal to the total of the credits. l Single-entry bookkeeping: An accounting system in which the recording of each transaction affects only one account as in the case of a ledger book.

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Define accounting and its function inDefine accounting and its function in business.business.

Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity

AssetsAssets –– Liabilities = Owner’s EquityLiabilities = Owner’s Equity

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Assets = Liabilities + Owner’s Equity & beyondAssets = Liabilities + Owner’s Equity & beyond

ll ReviewReview

l When you increase your assets l You increas e your Owner’s Equity l You have affected two accounts: Assets & Owner’s Equity l The equation is in balance l This is double-entry bookkeeping

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Debits & Credits?Debits & Credits?

ll Who needs them?Who needs them? ll What are they anyway?What are they anyway?

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Debits & Credits?Debits & Credits?

ll Debit:Debit: The left-hand side of any account. A number entered on the left side of any account is said to be debited to an account. ll Credit:Credit: The right-hand side of any account. A number entered on the right side of any account is said to be credited to an account.

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Debits & Credits? Rules!Debits & Credits? Rules! (Slater, 2002, p. 41)(Slater, 2002, p. 41)

Debit Debit Credit Debit Credit

Credit Credit Debit Credit Debit

Owner’s Equity Capital Withdrawals Revenue Expenses

Liabilities Credit Debit

Assets Debit Credit

IncreaseIncrease DecreaseDecrease (Normal(Normal Balance)Balance)

AccountAccount CategoryCategory

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Debits & Credits? T AccountsDebits & Credits? T Accounts

ll T AccountT Account: A skeleton version of a standard account, used for demonstration purposes.

Left side Debit (Dr.)

Right side Credit (Cr.)

Account TitleAccount Title

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Trial BalanceTrial Balance

Business OwnerBusiness Owner Trial Balance, September 1,Trial Balance, September 1, xxxxxxxx DRDR CRCR Cash……………………$5,425Cash……………………$5, Owner’s Capital …Owner’s Capital … $5,000$5, Rental IncomeRental Income ……………… 750750 Utilities ExpenseUtilities Expense ………… 325325 Totals………$5,750Totals………$5,750 $5,750$5,

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Financial StatementsFinancial Statements

  • Income Statement:Income Statement: An accounting statement that details the performance of a firm (revenue minus expenses) for a specific period of time.

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Financial StatementsFinancial Statements

Business OwnerBusiness Owner Income StatementIncome Statement Year to Date, September 1,Year to Date, September 1, xxxxxxxx

Rental Income …………Rental Income ………… $750$ Utilities Expense……….325Utilities Expense……….325 ________ Net Income……………..Net Income…………….. 425425 ========

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Financial StatementsFinancial Statements

ll Balance Sheet:Balance Sheet: A statement, as of a particular date, that shows the amount of assets owned by a business as well as the amount of claims (liabilities and owner’s equity) against these assets.

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Financial StatementsFinancial Statements

Business OwnerBusiness Owner Balance SheetBalance Sheet September 1,September 1, xxxxxxxx AssetsAssets LiabilitiesLiabilities Cash…...........…$5,425Cash…...........…$5, Owner’s EquityOwner’s Equity Owner’s Capital……….$5,000Owner’s Capital……….$5, Net Income…………….Net Income……………. 425425 Total Liabilities &Total Liabilities & Total Assets…...$5,425Total Assets…...$5,425 Owner’s Equity……..$5,425Owner’s Equity……..$5,