What is accounting?

What is accounting? • The planning, recording, analyzing, and interpreting of financial information. • Why is an accounting background important for a career in business? • Business executives must understand the financial position/well being of a company in order to make informed business decisions LESSON 1-1

Types of jobs in accounting • General office worker • Accounting clerks • Bookkeepers • CPA – certified public accountant • 150 college credits • 2 years experience and a test • Given twice a year; four parts – 1. business law, 2. audit, 3. tax, non-profit, and cost accounting, 4. financial accounting LESSON 1-1

Governing bodies • AICPA – American Institute of Certified Public Accountants (professional association) • PICPA – Pennsylvania Institute of Certified Public Accountants • GAAP – Generally Accepted Accounting Principles • Set the rules, principle, and guidelines accountants follow • FASB – Financial Accounting Standards Board • Create the broad accounting concepts and standards for financial reporting • SEC – Securities and Exchange Commission LESSON 1-1

Demand for accountants • What do you think the demand is? • Why? • US Patriot Act, 2001 • Because of terrorist attacks, 9/11 – greater study of cash flow • Sarbanes -Oxley Act, 2002 • More audit requirements because of Enron • Forensic Accounting LESSON 1-1

Skills/qualities of an accountant Skills Qualities Dependable Positive attitude Desire to help Friendly • Communication skills • Detail oriented • Computer skills • Math skills • Organizational skills • Critical thinking skills • Good ethics/morals LESSON 1-1

LESSON 1-1 The Accounting Equation Focus question: How do transactions in a business affect the accounting equation?

THE ACCOUNTING EQUATION Assets = Liabilities + Owner’s Equity Anything Owned Owners Investment in the Company Any Amount Owed LESSON 1-1

Anything of value that is owned by the entity. Assets

ASSETS are the RESOURCES OWNED BY A BUSINESS . Here are some types of assets that might be owned by a business company: Cash Accounts Receivable Notes Receivable ASSETS Vehicles Land Buildings Store Supplies Equipment

Land Computer Vehicle Cash Examples

Liabilities

An amount the business owes. Liabilities

LIABILITIES are the CREDITOR’S CLAIMS ON ASSETS. • Creditors are the people or companies to whom a business owes something (like money). • Here are some types of liabilities that a company might owe: Accounts Payable Notes Payable LIABILITIES Taxes Payable Wages Payable

The most common liability is a loan. • Another common liability is called creditors. • A creditor, also known as a payable, is any business or person (apart from the bank) that you owe. • Suppliers (who you owe for products purchased on credit) would fall under creditors. Examples

The amount remaining after deducting all liabilities from the assets. What is owner’s equity

The owner’s equity is simply the owner’s share of the assets of a business. In other words…

Represents the value of the assets that the owner can lay claim to. The value of all the assets after deducting the value of assets needed to pay liabilities. It is the value of the assets that the owner really owns. Owner’s equity

THE ACCOUNTING EQUATION page 8 • MUST ALWAYS BE IN BALANCE!!!  LESSON 1-1

accounting accounting system accounting records financial statements service business proprietorship asset equities liability owner’s equity accounting equation ethics business ethics TERMS REVIEW page 9 LESSON 1-1

LESSON 1-2 How Business Activities Change the Accounting Equation Focus question: How do transactions affect accounts in the accounting equation?

Transaction 1August 1. Received cash from owner as an investment, $5,000.00. RECEIVING CASH page 10 • Read the transaction. • Identify the accounts affected. • Classify the accounts affected. LESSON 1-2

Transaction 2August 3. Paid cash for supplies, $275.00. PAYING CASH page 11 • A transaction does not always require than an amount be recorded on both sides of the equation…equation remains in balance. • One asset is being exchanged for another. LESSON 1-2

Transaction 3August 4. Paid cash for insurance, $1,200.00 • Insurance policy – something of value own by TechKnow LESSON 1-2

Transaction 4 August 7. Bought supplies on account from Supply Depot, $500.00. TRANSACTIONS ON ACCOUNT page 12 It is common business practice to buy items and pay for them at a later date (bought on account). LESSON 1-2

LESSON 1-2

TERMS REVIEW page 13 • transaction • account • account title • account balance • capital LESSON 1-2

LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Focus question: How do transactions affect accounts in the accounting equation?

Transaction 6 August 12. Received cash from sales, $295.00. REVENUE TRANSACTIONS page 14 • What accounts are affected? Are they increased or decreased? • Revenue – increase in OE resulting from the operation of a business. LESSON 1-3

REVENUE TRANSACTIONS • What accounts are affected? Are they increased or decreased? • Sale on account – sale for which cash will be received at a later date. LESSON 1-3

Transaction 8 August 12. Paid cash for rent, $300.00. EXPENSE TRANSACTIONS page 15 • What accounts are affected? Are they increased or decreased? • Expense – decrease in OE resulting from the operation of a business. LESSON 1-3

What accounts are affected? Are they increased or decreased? LESSON 1-3

Transaction 10 August 18. Received cash on account from Oakdale School, $200.00. OTHER CASH TRANSACTIONS page 16 • OE is not affected when cash is received on account. Why? LESSON 1-3

What is the difference between an expense and a withdrawal? • Both decrease OE, but a withdrawal is not an expense because it is not a result of normal business operations. LESSON 1-3

Two things that Increase the Owners Equity account: 1. Investments 2. Revenue Two things that Decrease the Owners Equity account: 1. Expenses 2. Withdrawals LESSON 1-3

TERMS REVIEW page 17 • revenue • sale on account • expense • withdrawals LESSON 1-3

What is accounting?