Financial Accounting

1. Financial Accounting

2. Measures Processes Communicates…… Financial information to decision makers Accounting

3. Individuals Businesses Investors Creditors Taxing Authorities Decision Makers

4. Financial Accounting Financial accountingis primarily concerned with the recording and reporting of economic data and activities for a business for outside users.

5. Managerial Accounting Managerial accountinguses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations.

6. Accounting Cycle

7. Flow of Accounting Data 7

8. An event that affects the financial position of a particular entity and can be recorded reliably Transaction

9. Journalizing Transactions Record transaction in journal, including a brief explanation 9

10. Journal Chronological record of the transactions 10

11. Posting Posting – copying amounts from the journal to the ledger Periodically, journal entries are posted to ledger accounts to determine balances in each account 11

12. Ledger • A group of accounts for a business entity

13. Flow of Accounting Data 13

14. Trial Balance List of all accounts with their balances 14

15. Flow of Accounting Data 15

16. Structure of Accounting

17. Account Basic summary device Detailed record of increases and decreases in specific assets, liabilities, or owner’s equity during a period 17

18. Account Types Accounts are grouped in 3 broad categories: Assets Liabilities Owner’s Equity 18

19. The resources owned by a business that have future value The Accounting Equation Assets = Liabilities + Owner’s Equity

20. Economic resources, expected to benefit the business in the future Cash Accounts receivable Merchandise inventory Furniture Land Assets

21. The rights of the creditors, which represent debts of the business The Accounting Equation Assets = Liabilities + Owner’s Equity

22. Economic obligations payable to an individual or organization outside the business Accounts payable Notes payable Salary payable Liabilities

23. The rights of the owners The Accounting Equation Assets = Liabilities + Owner’s Equity

24. Claim of business owner to the assets of the business Capital Withdrawals Revenues Expenses Owner’s Equity

25. Amounts earned by delivering goods or services to customers Sales revenue Service revenue Interest revenue Dividend revenue Revenues

26. Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers Salary expense Rent expense Utilities expense Interest expense Expenses

27. Capital Varies in structure with the type of business: Sole Proprietorship Partnership Corporation

28. Sole Proprietorship One owner Not a separate legal entity Not a separate tax entity Unlimited Liability Accounts used: “Capital” “Draw” or “Withdrawal”

29. 1-29 Partnership Two or more owners Not a separate legal entity Not a separate tax entity Unlimited Liability Accounts used: “Capital” for each partner “Draw” or “Withdrawal” for each partner

30. 1-30 Corporation One or more owners Separate legal entity Separate tax entity Limited Liability Accounts used: “Paid in Capital” for owners’ investments “Retained Earnings” for operational profit/loss

31. Owner’s Equity Assets = Liabilities + Owner’s Equity Assets - Liabilities = Owner’s Equity