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¸¸Fundamentals of AccountingFundamentals of Accounting
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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.
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Define accounting and itsDefine accounting and its
function in business.function in business.
Then what’sThen what’s
bookkeeping?bookkeeping?
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Define accounting and itsDefine accounting and its
function in business.function in business.
ll BookkeepingBookkeeping: The recording function of the accounting process.
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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.
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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,
