Accounting

1. Accounting

3. A Day in the Life of an Accountant • http://www.youtube.com/watch?v=UyixFLxZSdQ

4. What Do Accountants Do? • Accountants make meaningful and effective decisions based on up to date and accurate records of a company or business. • Accounting is the process of recording, analyzing, and interpreting the financial or economic activities of a business. Financial activities in a business are recorded as transactions.

5. Financial Statements Financial statements are reports that summarize how well a company is doing financially. • There are 3 main financial statements: the Balance sheet, the Income Statement, and the Cash Flow Statement. • Who reads financial statements? Investors Auditors Management Government

6. Preparing a Balance Sheet • The Balance sheet show the financial position on any given day of the business • It provides information about its assets, liabilities, and equity • How the balance sheet gets its name: • The left side of the equation (assets) always equals the right side (liabilities plus owner’s equity) • Assets = Liabilities + Owner’s Equity

7. The balance sheet contains 3 sections: ASSETS (Section 1) Items of value that are owned by a business Common assets owned by a business: • Cash (bank included) • Inventory • Equipment • Supplies • Vehicles • Building • Accounts Receivable (the term used when someone else owes a business money) Assets should be listed on a balance sheet in order of liquidity (how fast they can be converted into cash)

8. QUESTION • Consider Tim Horton’s as a business • What things does Tim Horton’s own that could be considered an asset? • Remember that assets have value and are used in the business for an extended period of time > one year

9. Cost Principle • The accounting practice requires that assets be recorded at their original cost. • Even if the asset is 20 years old, the financial statements always reflect what the company paid for the asset.

10. LIABILITIES (Section 2) The debts of the business ($ business owes) Common liabilities owed by a business: • Accounts Payable (the term used when the business owes someone else money) • Bank Loan • Mortgage Payable Liabilities should be listed in the order they will be paid back.

11. QUESTION • Consider Tim Horton’s as a business • What types debts might Tim Horton’s incur? • Think about how they buy assets and other items that are used in the business

12. OWNER’S EQUITY(Section 3) • The amount of assets that remain in a business after the liabilities are paid - this becomes the owner’s stake net worth in the business. • The equity in a corporation is called Shareholders equity because the shareholders are the true owners in a corporation.

13. Fundamental Accounting Equation (LS = RS) Assets = Liabilities +Owner’s Equity (OE) OR Assets – Liabilities = Owner’s Equity (OE) OR Liabilities = Assets – Owner’s Equity (OE)

14. Balance Sheet Challenge • Balance Sheet classification challenge • Take a few minutes to complete the challenge and then share your answers with the class

15. Accounting Cycle • For accounting purposes, business cycles are typically reported in years referred to as fiscal periods. • The Balance Sheet reports information (cumulative) at a specific point in time. A Balance Sheet for December 31st might read December 31, 20XX, or as at December 31, 20XX. • The Income Statement reports business results at the end of the cycle. The Income Statement might read, for the month, or year ended December 31st. • Unlike the balance sheet, it only reports the net income (loss) for that reporting cycle.

16. Harold Rosenbaum cont’d. • http://www.youtube.com/watch?v=oT2f7oEdeX8

17. Preparing Financial Statements

18. SOFTBYTE Balance Sheet • Assets = Cash $8,050, Accounts Receivable $1,400, Supplies $1,600 and Equipment $7,000 • Liabilities = Accounts payable $1,600 • What is owner’s equity? • Use the accounting equation Assets = Liabilities + Owner’s equity

19. Softbyte • Total assets = 18 050 • Total liabilities = 1 600 • Use the accounting equation to calculate for Owner’s equity • Assets = Liabilities + Owner’s Equity or • Assets – liabilities = OE • 18 050 – 1 600 = 16 450

21. Preparing Balance Sheets • Activity #1 • Use the data provided in your course pack to prepare a balance sheet for Judy’s Boutique. • Remember to use the fundamental accounting equation • Assets = Liabilities + Owner’s Equity to calculate Judy’s net worth (capital) • Hint: rearrange the equation to Assets - Liabilities

24. Harold Rosenbaum cont’d. • http://www.youtube.com/watch?v=v8MrQ2CpIi0

25. Preparing Balance Sheets • Activity #2 • For Homework use the data provided in your course pack to prepare a balance sheet for Snackbar Haven.

27. Harold Rosenbaum cont’d. http://www.youtube.com/watch?v=BjeK9Q9kwoM

28. INCOME STATEMENT • A report that shows a business’s profitability over a period of time (like a movie; not a snapshot) • Businesses are required by law to create an income statement at the end of its fiscal year. Service Business • Income statements show revenue and expenses Merchandising Business • Income statement shows revenue, expenses and cost of goods sold.

29. Preparing Financial Statements Balance Sheet Report Form Method Computer programs easily complete the balance sheet using an up-and-down column format rather than a side-by-side format (account form method) Preparing an Income Statement The income statement is a financial statement that shows a business’s profit (or loss) over a stated period of time. The money, or the promise of money, received from the sale of goods or services is called revenue. Expenses are expenditures that help a business generate revenue.

30. PreparingFinancial Statements: Income Statements for Service Businesses Income Statement

31. Preparing Financial Statements Income Statements for Service Businesses Net income for a service business is calculated as follows: Revenue – Expenses = Net Income Net income for a retail business is different. We will only be studying service businesses in this unit.

32. Preparing Income Statements • Activity #1 • Use the data provided in your course pack to prepare an income statement for the Law Office of Dewey, Cheetham, and Howe for the month ending December 31, 20__. 

35. Preparing Income Statements • Activity #2 • Use the data provided in your course pack to prepare an income statement for Markville Laundromat for the year ending June 30, 20__. 

38. Basic Accounting Concepts “Capital” is added to identify the owner’s account Owner’s Equity Account The net profit is calculated first then transferred to the balance sheet as part of owner’s equity. Creditors and owners have claims on the assets of the business. Preparing a Statement of Cash Flow Cash flow is the movement of cash-in and cash-out of a business. The statement of cash flow is a summary of the cash-in and cash-out transactions of a business that helps to predict the amount of cash it needs to meet obligations. Owner’s Equity C. Donahue, Capital, Jan. 1, 20__ $ 75 000 Add: Net Income $ 40 000 C. Donahue, Capital, Dec. 31, 20__ $ 115 000 Projected Cash Flow Statement Mark’s Repair Shop October 31, 20__ Transaction In (+) Out (-) Investment Income +$ 500.00 Accounts Receivables +750.00 Equipment to be Sold +1 250.00 Payroll Not Yet Paid -$ 460.00 Loan Repayment -930.00 Insurance Due -200.00 Projected Cash Flow 910.00

39. Basic Accounting Concepts Ways to Increase Cash Flow A business must consider several ways to meet its obligations if cash flow is inefficient. With a partner, think of ways a business could generate more cash? Share your ideas with the class.

40. Basic Accounting Concepts Ways to increase Cash Flow Increase the price of goods Minimize costs Spread out expenses Reduce inventory Use the right kind of debt Collect what is owed to the business Shorten the deadline for accounts receivable Stretch the deadline for accounts payable

41. Basic Accounting Concepts • Cash-flow Implications of Credit and Debit Cards • Businesses that allow customers to use a credit and/or debit card do not have wait for their money (accounts receivables); they receive their money (sales revenue) up front. Since these businesses take a long time to pay their own bills, they invest the customers’ cash to make more money.

42. Basic Accounting Concepts Interpreting Financial Statements Financial statement information allows accountants to make recommendations to owners regarding future business decisions. Accountants compare data over a set period of time, usually two or more years. A Final Measure of Success For a business to be successful, the return on the owner’s investment should be equal to or greater than the return for a savings account, bond, or mutual fund.

43. Accounting as a Career • One accounting designation – CPA (comprised of CGA, CMA and CA) • University degree • Canadian Bookkeepers Association • Accredited through the organization • Average salary approximately $20/hour

44. Top 20 starting salaries - 2012 Content from Manulife Financial, Published Friday, Aug. 24 2012, 4:38 PM EDT http://www.theglobeandmail.com/globe-investor/personal-finance/financial-road-map/advmanulife/advmanulifearchives/top-20-starting-salaries/article4505934/

45. Accounting Matching Game • Match the terms with their correct definitions

46. Harold Rosenbaum Chartered Accountant Extreme http://www.youtube.com/watch?v=UVJPOYyOIP0