1 / 67

Introduction to accounting

Introduction to accounting. Miss Savige. Overview. Any thing in RED write down in your books please . Learning Intentions. General understanding of accounting and the language of business Knowledge and understanding of the five types of account classification. Asset Liability Income

onslow
Download Presentation

Introduction to accounting

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Introduction to accounting Miss Savige

  2. Overview • Any thing in RED write down in your books please

  3. Learning Intentions • General understanding of accounting and the language of business • Knowledge and understanding of the five types of account classification. • Asset • Liability • Income • Expenses • Equity

  4. Accounting Concepts • What do you think accounting is? • Bank statements • Profit • Tax • Business • Financial statements • Management • Partnership • The process or work of keeping financial accounts

  5. Common phrases • The language of business. • A means to communicate financial information. • A way to convey information about a business to users.

  6. Other Definitions • The production of information about an enterprise and the transmission of that information from people who have it to those who need It. – (Intermediate Accounting, 2nd edition) • The information system that measures business activity, process the data into reports and communicates the results to decision makers. – (accounting 6th edition)

  7. Who uses accounting? • Individuals • Businesses (managers, owners) • Investors • Creditors • Governments • Tax authorities • Non-profit organisations • Others….

  8. How they use accounting • Individuals • manage bank accounts • Evaluate jobs • Decide whether they can afford something (e.g. a car • Businesses • Set goals • Budgeting • Investors • Whether to invest or not • How much they will get in return if they invest • Creditors (e.g. Banks) • If a company can make the loan repayments • Report on predicted income

  9. How they use accounting • Governments • For making decisions regarding welfare • Tax authorities • Tax is calculated using accounting information • How much business have purchased and sold • Non-profit organisations • The same way business do • Others. (employees, unions, etc.) • Estimate wages • Decipher business profit • Influence potential decisions

  10. reflection • write down two examples of who uses accounting • write an example of how you used accounting within this month • People who use accounting to manage bank accounts are ________? • Budgeting for products is used by ________ ? Why?

  11. Account classification • Accounting is based on 5 basic account types • Asset • Liability • Owners Equity • Income/revenue • Expenses

  12. What is an Asset? • An asset is a resource that a business/ person/ government owns and is expected to benefit them in the future. • something that is of a benefit • Examples?

  13. What is an asset • Cash at bank • Accounts receivable (paid by credit) • Bills receivable (paid by certain date) • Inventories (stock) • Prepaid expenses • Land • buildings

  14. Different types of assets • Current assets • Assets that can be converted into cash or sold within the next 12 months • Land • Property • Non-current assets • Assets that are not current assets. • Equipment that is needed for the company to run

  15. What is a liability • Economic obligations (debts) payable to an individual or an organisation outside the business • A responsibility or an obligation of arising from past transactions or events. • Examples?

  16. What is a Liability • Accounts payable (opposite of accounts receivable) • Bills payable (opposite of bills receivable) • Accrued liabilities (sometimes called accrued expense) • Interest, salary

  17. Learning intention • Demonstrate knowledge and understanding of assets, liabilities, owners equity and the accounting equation. Reminder • Any thing in RED write down in your books please

  18. Liability asset Accounts payable • Something that the company has paid for by credit and not cash Bills payable • Unpaid bills Accounts receivable • A sale that was paid for by credit and the company is yet to receive the payment e.g. cash Bills receivable • An invoice has been sent out and a company is waiting for the payment

  19. Accrued liability • Accrued – to accumulate - (benefit or sum of money) - received by someone in regular or increasing amounts • Accrued Liability is an expense that has been acquired but not yet paid in cash. (has not been paid therefore it is owed) • Wages – an employee has done the work but you haven't paid them yet. • Interest – the interest is continually rising but the company does not pay it until the end of the month

  20. What is owners equity • What the business is worth • Owners equity is the difference between the assets and the liabilities of a business and equals the amount of the owners investment in the business • What an owner invests in the company • Owners equity = Assets – Liabilities • Examples?

  21. What is owners equity • Capital – What an owner invest in a company (money, land, buildings) • Drawings – what an owner removes from the company • Revenues (income) • Expenses Covered further down

  22. Which is which? • Classify each of the following as assets, liabilities or Owners equity • Accounts payable • Loan from bank • Owners interest in the business • Furniture • Money owed by Jack • Cash at bank • Stock / inventory • Rent – that you have to pay • Salaries

  23. Equations • Assets = Liabilities + owners equity • A = L + OE • The accounting equation • Owners equity = Assets – Liabilities • OE = A – L • Liabilities = Assets - Owners equity • L = A - OE

  24. Owners Equity = Assets - Liabilities • OE = A - L • John Smith the owner of the tuckshop wants to know his investment in the business. Use the above equation to work out the total value. • Cash at bank $ 500 • Loan from PNC comity $ 200 • Accounts payable $ 50 • Accounts Receivable $ 70 • Value of stock $ 80 • Value of fridge $ 200

  25. Assets • Cash at bank $ 500 • Accounts Receivable +$ 70 • Value of stock +$ 80 • Value of fridge +$ 200 =$ 850 • Loan from PNC comity $ 200 • Accounts payable +$ 50 =$ 250 Answer $ 600

  26. Assets = Liabilities +owners equity • A = L + OE • John Smith the owner of the tuckshop wants to know the value of the assets. Use the accounting equation to work out the total value. • Amount owed to jack $100 • Cost of bread $ 20 • Loan from PNC $300 • Amount owing by Ms Schmidt $ 10 • New fridge monthly repayment $ 50 • John smiths Investment $ 500

  27. Learning intention • Demonstrate knowledge and understanding of income/revenue and expenses as well as how assets, liabilities and owners equity, work in the accounting equation. Reminder • Any thing in RED write down in your books please

  28. Understanding the accounting equation • Total assets must always equal total liabilities plus owners equity • If the owner puts $20,000 in a business where does that money go (what account does it go into)? • If the business buys furniture on credit what type of account is being used? (WRITE DOWN WHAT YOU THINK THE ANSWERS ARE)

  29. The money goes into cash at bank • Equal reaction on the other side • Created a liability but also gained an asset • Created liability through buying something on credit • Gained an asset through obtaining furniture

  30. A = L + OE • John Smith the owner of the tuckshop wants to know the value of the assets. Use the accounting equation to work out the missing asset value. • Amount owed to jack $100 • Cost of bread $ 20 • Loan from PNC $300 • Amount owing by Ms Schmidt $ 10 • New fridge monthly repayment $ 50 • John smiths Investment $ 500

  31. What is income/revenue • The total amount of all revenues and other gains received in an accounting period. • Can enhance an asset can decrease a liability • (does not include money put in by the owner) • Increase the economic benefit • Examples?

  32. Learning intention • Demonstrate knowledge and understanding of income/revenue and expenses as well as how assets, liabilities and owners equity, work in the accounting equation. Reminder • Any thing in RED write down in your books please

  33. What are expenses • The result of decreasing asset or increasing liabilities is called an expense. An expense occurs from the cost of delivering services to clients. • Decreases economic benefit • Does not include distributions of equity participants

  34. Types of expenses • Office rent • Salaries for employees • Advertising • Water, electricity gas • insurance • Supplies (used) • Cash expenses • Depreciation } ONLY BECOME EXPENSES WHEN PAID

  35. what IS depreciation • The devaluing of something • E.g. Apple Iphone 3 cheaper now because over time more advance products have came out • E.g. Wear an tear, a brand new car as soon as it is use is worth less than it was originally • The result of decreasing an asset or increasing liabilities is called an expense. An expense occurs from the cost of delivering services to clients.

  36. Summary The Basic Accounting Elements: Asset • Something a business owns or controls that is of benefit. Liability • Obligation to settle debts in the future Owners’ Equity • Owners’ interest in the company Revenue/Income • Operations of the company that increase assets and economic resources Expense • Decrease in economic resources and assets.

  37. Activity together • If John Smith has the following assets and liabilities what is the owners equity • Cash at Bank $ 1,000 • Loan from bank $ 4,000 • Accounts payable $ 500 • Accounts receivable $ 8,000 • Inventories $ 2,000 • Furniture $ 3,500

  38. Answer Assets - Liabilities = Owners equity Cash at bank Loan from bank $1,000 $4,000 Accounts receivable Accounts payable $8,000 $ 500 Inventories $2,000 Furniture $3,500 Total $14,500-$4,500 = $10,000

  39. Activity 1 (left side do) Activity 2 (right side do) Consider using excel • John Smith gives you the following list of items. Use the accounting equation to determine the total value of assets • Money owing to Tim $ 1,000 • Value of stock $ 8,000 • Loan from bank $ 1,000 • Amount owing from Jack $ 1,000 • New Equipment $ 3,000 • Vehicle's value $15,000 • John Smiths investment $25,000

  40. Now do the other activity Activity 1 (right side do) Activity 2 (leftside do) • John Smith gives you the following list of items. Use the accounting equation to determine the total value of assets • Money owing to Tim $ 1,000 • Value of stock $ 8,000 • Loan from bank $ 1,000 • Amount owing from Jack $ 1,000 • New Equipment $ 3,000 • Vehicle's value $15,000 • John Smiths investment $25,000 L

  41. Activity 1 answer • Assets = $ . Activity 2 answer

  42. Activity 1 answer • Assets = $27,000 . Activity 2 answer

  43. L Game Time • Fill in the blank • Capital is what an owner . . in a company. • Drawings is what an owner . . from the company • Accounting is . . (please circle) • Income/revenue Increases the T F • economic benefit • Expenses Increases the economic benefit T F • Owners equity is the difference between the . . and the . . of a business and equals the amount of the . . Investment in the business

  44. Two examples of an Asset. 1 . 2 . • Two examples of a Liability. 1 . 2 . • Two examples of Owners equity. 1 . 2 . • Two examples of an Expense 1 . 2 . • Two examples of Income/revenue 1 . 2 . • What is the Accounting equation? . . • Fill in the Blank. An asset is something a business . . or controls that is of . . (please circle) • Is budgeting in accounting? T F • Accounts are the only people who use accounting T F • Non Current assets are sold within 12 months. T F • I owe John Smith money, that is an asset T F • Accounts payable is the opposite of accounts receivable T F • Owners equity = Assets + Liabilities T F • Liabilities = Assets - Owners equity T F • Total assets must always equal total liabilities plus T F owners equity

  45. Learning intention • Demonstrate knowledge and understanding of revenue and expenses as well as how assets, liabilities and owners equity, work in the accounting equation. • Demonstrate knowledge and understanding of who uses accounting Reminder • Any thing in RED write down in your books please

  46. Who uses accounting • Individuals • Businesses • Investors • Creditors • Governments • Tax authorities • Non-profit organisations • Others. (employees, unions, etc.) • manage bank accounts • Evaluate jobs • Decide whether they can afford something (e.g. a car) • Set goals • Budgeting • Whether to invest or not • How much they will get in return if they invest • If a company can make the loan repayments • Report on predicted income • For making decisions regarding welfare • Tax is calculated using accounting information • How much business have purchased and sold • The same way business do • Estimate wages • Decipher business profit • Influences for potential decisions

  47. Game time Assets owners equity liabilities

  48. Activity • Show three ways the accounting equation can be expressed (write them down) • A = L + OE • OE = A – L • L = A - OE

More Related