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BAF3M Fundementals of Accounting

BAF3M Fundementals of Accounting. What is Accounting?. Is a System that. Identifies Records Communicates. Accounting. Relevant Reliable Comparable Consistent. To help users make better decisions.

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BAF3M Fundementals of Accounting

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  1. BAF3M Fundementals of Accounting

  2. What is Accounting? Is a System that Identifies Records Communicates Accounting Relevant Reliable Comparable Consistent To help users make better decisions This happens in either a Service Business (UPS) or a Merchandising Business (Walmart).

  3. The Accounting Cycle There are 7 steps in the Accounting Cycle. • Journalize (Using the General Journal) • Post (To Ledger Accounts – which are also known as T- Accounts) • Trial Balance (Can enter on the Worksheet) • Adjustments (On the worksheet) • Complete the Worksheet • Financial Statements (Income Statement then the Balance Sheet) • Closing Entries (Closing the Temporary Accounts – Drawings, Revenue, Expenses) * The Accounting Cycle Handout* We are going to start here

  4. Unit # 1 – The Balance Sheet • Contains 3 headings: • Assets = Liabilities + Owner’s Equity • Accounting is based off of this equation! • You must know it! • This tells us the Financial Position of a Company!

  5. Unit # 1 – The Balance Sheet • What are Assets? • Anything that a Business (or Person) owns of value. • What are Liabilities? • Anything that a Business (or Person) owes of value. • Therefore: • Assets = Owns • Liabilities = Owes

  6. Unit # 1 – The Balance Sheet • So what are examples of Assets? • Cash ($ in the Bank) • Accounts Receivable • $ that is owed to you by customers – aka. Your money in someone else's hands • Equipment • Cars • Computers • Furniture (Desks, Chairs, Cubicles) • Factory • Land • A business owns these!

  7. Unit # 1 – The Balance Sheet • What about Liabilities? • Bank Loan • Credit Card Debt • Accounts Payable • Wages Payable • Salaries Payable • Mortgage Payable • “Payables” are money that you owe to another business (ex. A Supplier)

  8. Unit # 1 – The Balance Sheet • Owner’s Equity • Net Worth of a Business (The Difference Between Assets & Liabilities). • There is only one Equity Account you need to know (as of now): Capital • Recall A = L + OE • Therefore: A – L = OE • If A > L, the Business has a Positive Net Worth • If A < L, the Business has a Negative Net Worth

  9. Unit # 1 – The Balance Sheet • Activity: • You will get a card. Your goal is to find out where you belong….Are you an Asset, Liability, or Owner’s Equity? • A, L, OE Pictionary • You will be put into teams. Each team will get one answer to guess the “drawing” of the card. • The Answer will be either: • Asset • Liability • Owner’s Equity

  10. Unit # 1 – The Balance SheetTurn to Page 7 • Step 1 – Prepare Headings • Line 1 – Who? • Line 2 – What? • Line 3 – When? • Step 2 – List Assets on Left Side • Put Assets in order of Liquidity • Liquidity means how fast the assets can be converted into cash.

  11. Unit # 1 – The Balance Sheet • Step 3 - List Liabilities on Right Hand Side • Put Liabilities in order of Maturity • Maturity means that the bills (or accounts) that are due first, are listed first. • Step 4 – List Owner’s Equity on Right Hand Side • Step 5 – Make sure that your Assets (Left Hand Side) and your Liabilities & Owner’s Equity (Right Hand Side) balance.

  12. The Balance SheetPg 7 of your Textbook

  13. Liquidity Order Cash: Most Liquid Accounts Receivable: Paid within 30 Days Land, Building, Equipment: Longest life remaining listed first Maturity Order Accounts Payable: Due within 30 Days Bank Loan: Usually 1-5 Years Mortgage: Usually 25 Years Unit # 1 -The Balance Sheet

  14. Users of the Balance Sheet • Owners – Indicates the owners claim on the business assets. Comparing Balance Sheets at different points in time will show whether the financial position is improving • Creditors – Companies considering extending money are interested in the liquid assets available to meet payments as well as the claims on assets

  15. Users of the Balance Sheet • Investors – The Financial position of a business is one of the main factors investors consider when deciding whether or not to invest in a business. They want to protect their investment and are interested in the same information as the creditors. • Government – Government departments need information for policy decision making, statistical reports, and taxation.

  16. Balance Sheet Order Game • You will receive one card. • You must rearrange yourselves in the correct Balance Sheet order starting from the “Titles”, to Assets, to Liabilities, and finally to Owner’s Equity

  17. GAAP’s • GAAP stands for Generally Accepted Accounting Principle. • There are many GAAP’s and will we cover each of them as they come up throughout the semester. • So far we have covered two. • The Business Entity Principle • The Cost Principle

  18. GAAP’s so far…. • Business Entity Principle • The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization. • Cost Principle • Items are recorded in the books at the historical cost paid by the purchaser, and do not change from their original value.

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