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The System of Accounting

The System of Accounting. The Entity Concept. Any organizational unit. The Entity Concept. Any organizational unit for which we want. The Entity Concept. Any organizational unit for which we want financial information. Assets. Anything of value held by an organization Assets have. Assets.

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The System of Accounting

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  1. The System of Accounting

  2. The Entity Concept Any organizational unit

  3. The Entity Concept Any organizational unit for which we want

  4. The Entity Concept Any organizational unit for which we want financial information

  5. Assets • Anything of value held by an organization • Assets have

  6. Assets • Anything of value held by an organization • Assets have • Potential usefulness

  7. Assets • Anything of value held by an organization • Assets have • Potential usefulness • Future usefulness

  8. Assets • Anything of value held by an organization • Assets have • Potential usefulness • Future usefulness • Economic Value

  9. Equities • Claims against the total assets of an organization • Liabilities • Claims of nonowners • Owner's Equity • Claims of owners

  10. Revenues • Inflows of assets that result from performing services or selling goods • Revenues are realized when • the service is performed or

  11. Revenues • Inflows of assets that result from performing services or selling goods • Revenues are realized when • the service is performed or • the goods are delivered

  12. Expenses • Outflows of assets or incurrence of liabilities while earning revenues • A business incurrs expenses to earn revenues

  13. The Accounting Equation • Things of Value = Claims • Assets = Equities • Assets = Liabilities + Owner's Equity

  14. The Account Account Title

  15. The Account Account Title Left side

  16. The Account Account Title Left side Rightside

  17. The Account Account Title Left side Rightside the debit side

  18. The Account Account Title Left side Rightside the debit side the credit side

  19. Summary of the Debit/Credit Rules • Assets

  20. Summary of the Debit/Credit Rules • Assets • Appear on the left (debit) side of the equation

  21. Summary of the Debit/Credit Rules • Assets • Appear on the left (debit) side of the equation • Therefore we: • Increase them with debits • Decrease them with credits

  22. Summary of Debit/Credit Rules • Liabilities

  23. Summary of Debit/Credit Rules • Liabilities • Appear on the right (credit) side of the equation

  24. Summary of Debit/Credit Rules • Liabilities • Appear on the right (credit) side of the equation • Therefore we: • Increase them with credits • Decrease them with debits

  25. Summary of Debit/Credit Rules • Owners' Equity

  26. Summary of Debit/Credit Rules • Owners' Equity • Appear on the right (credit) side of the equation

  27. Summary of Debit/Credit Rules • Owners' Equity • Appear on the right (credit) side of the equation • Therefore: • Increase them with credits • Decrease them with debits

  28. Summary of Debit/Credit Rules • Changes in owners' equity • Issuances of common stock

  29. Summary of Debit/Credit Rules • Changes in owners' equity • Issuances of common stock • Causes increase in owners' equity

  30. Summary of Debit/Credit Rules • Changes in owners' equity • Issuances of common stock • Causes increase in owners' equity • Recorded by regular owners' equity rules • Increased with credits • Decreased with debits

  31. Summary of Debit/Credit Rules • Changes in owners' equity • Dividends

  32. Summary of Debit/Credit Rules • Changes in owners' equity • Dividends • Cause decreases in owners' equity

  33. Summary of Debit/Credit Rules • Changes in owners' equity • Dividends • Cause decreases in owners' equity • Recorded opposite as regular owners' equity • Increased with debits • Decreased with credits

  34. Summary of Debit/Credit Rules • Changes in owners' equity • Revenues

  35. Summary of Debit/Credit Rules • Changes in owners' equity • Revenues • Cause increases in owners' equity

  36. Summary of Debit/Credit Rules • Changes in owners' equity • Revenues • Cause increases in owners' equity • Recorded by regular owners' equity rules • Increased with credits • Decreased with debits

  37. Summary of Debit/Credit Rules • Changes in owners' equity • Expenses

  38. Summary of Debit/Credit Rules • Changes in owners' equity • Expenses • Cause decreases in owners' equity

  39. Summary of Debit/Credit Rules • Changes in owners' equity • Expenses • Cause decreases in owners' equity • Recorded opposite as regular owners' equity • Increase with debits • Decreased with credits

  40. Records in the Accounting System • Journal • Book of original entry • Chronological record of events • Ledger • Book of final entry • Categorical record of events

  41. Journal Entries • What information do we need to record? • Date

  42. Journal Entries • What information do we need to record? • Date • Debit account

  43. Journal Entries • What information do we need to record? • Date • Debit account • Debit amount

  44. Journal Entries • What information do we need to record? • Date • Debit account • Debit amount • Credit account

  45. Journal Entries • What information do we need to record? • Date • Debit account • Debit amount • Credit account • Credit amount

  46. Journal Entries • What information do we need to record? • Date • Debit account • Debit amount • Credit account • Credit amount • Supplementary information

  47. Journal Entry Dec. 1

  48. Journal Entry Dec. 1 Cash

  49. Journal Entry Dec. 1 Cash 25,000

  50. Journal Entry Dec. 1 Cash 25,000 Common Stock

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