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Introduction to Accounting. 8 th grade Mrs. Stovall. What is accounting?. The system of recording and summarizing financial transactions and analyzing, verifying, and reporting the results http://www.merrian-webster.com/dictionary/accounting. Who uses accounting?. Everyone!
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Introduction to Accounting 8th grade Mrs. Stovall
What is accounting? • The system of recording and summarizing financial transactions and analyzing, verifying, and reporting the results • http://www.merrian-webster.com/dictionary/accounting
Who uses accounting? • Everyone! • Businesses use accounting information to run the business • Investors use it to make decisions about whether to buy a company’s stocks • Creditors use it to make decisions about whether to loan money to a company • IRS use it to determine how much taxes the company must pay • Customers use the information to determine which company to purchase products or services from (you want a company that is going to be around in the future)
Key Terms • Assets – things you own • Liabilities – a debt or obligation (money owed) • Owner’s Equity – the amount of the initial investment plus retained earnings. • Income – a monetary gain (usually from the sale of products or service) • Expenses – financial burdens; cost
Debits and Credits Analyzing and RecordingBusiness Transactions Setting up and organizing a chart of accounts.
Business Transactions • Owner invests cash in a business. • Owner buys business assets. • Services are performed and cash received. • Services are performed and billed to customers as accounts receivable. • Business expenses are incurred and paid for with cash or paid for later.
Documenting Business Transactions • Analyze events (transactions) • Decide which accounts are affected. • Choose the account category. • Determine whether the event will cause an increase or decrease to the account. • Record the transaction with proper debits and credits.
Debits and Credits • Every transaction must be recorded. • Every transaction must affect at least two accounts. • Debits must equal credits. • The accounting equation must be in balance.
T-accounts • A T account is a format used to show the effect of transactions. • Dollar signs ($) are not used in accounts. T account Left Right Debit Credit
The Ledger Account • Account: Cash
Debits and Credits What is the definition of debit? • The left side of any T account. • A number entered on the left side of any account is said to be debited to an account. What is the definition of credit? • The right side of any T account. • A number entered on the right side of any account is said to be credited to an account.
Debits and Credits ___________Account Name (Title)___ Left side/Dr. (debit) __________Account Name (Title)____ Right side/Cr. (credit)
Financial Statements • Balance Sheet – An official financial statement that includes the company’s assets and liabilities. It determine the value of the company by subtracting liabilities from assets. • Income Statement – A financial statement of a company’s operation. Shows a company’s income, expenses, and income for a period of time. Shows the company’s profit or loss for a given period of time
Formulas • Assets = Liabilities + Owner Equity • Income-Expenses = Net Income or Net Loss • Total Income = Sales & Interest Income • Total Expenses = all expenses
BCSIII- Accounting Unit Essential Questions • What are debits? Credits? • What are the basic account types? • What is an Income Statement? • What is a Balance Sheet?
