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THE LANGUAGE OF ACCOUNTING. 1. THE LANGUAGE OF ACCOUNTING. ACCOUNTING DEFINED WHO USES ACCOUNTING? TYPES OF ACCOUNTING INFORMATION ACCOUNTING PRINCIPLES, ASSUMPTIONS / CONCEPTS FORMS OF BUSINESS ORGANIZATION FINANCIAL STATEMENTS TYPES OF ACCOUNTS. TYPES OF ACCOUNTING INFORMATION.

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1 the language of accounting
1. THE LANGUAGE OF ACCOUNTING
  • ACCOUNTING DEFINED
  • WHO USES ACCOUNTING?
  • TYPES OF ACCOUNTING INFORMATION
  • ACCOUNTING PRINCIPLES, ASSUMPTIONS / CONCEPTS
  • FORMS OF BUSINESS ORGANIZATION
  • FINANCIAL STATEMENTS
  • TYPES OF ACCOUNTS

Ahmed Elshahat

types of accounting information
TYPES OF ACCOUNTING INFORMATION
  • Financial: Used by management and external users... Ex. financial statements
  • Internal Auditing: Evaluating system of internal control... reports are accurate and reliable
  • (Income) Tax Accounting: Must pay Uncle Sammy
  • Management (cost) Accounting: Internal use... (CMA)

Ahmed Elshahat

gaap generally accepted accounting principles
GAAP (Generally Accepted Accounting Principles)
  • Broad rules adopted by the accounting profession. Sources;
  • FASB: Financial Accounting Standards Board
  • SEC: Securities & Exchange Commission
  • AICPA: American Institute of CPA's
  • GASB: Government Accounting Standards Board
  • AAA: American Accounting Association
  • CMA: Certified Management Accountants

Ahmed Elshahat

accounting principles assumptions concepts
ACCOUNTING PRINCIPLES, ASSUMPTIONS / CONCEPTS
  • Cost principle
  • Ongoing concern concept
  • Business entity concept
  • Objectivity principle
  • Stable-dollar concept
  • Realization principle
  • Monetary unit assumption

Ahmed Elshahat

types of accounts
Types of accounts
  • Balance Sheet Accounts
      • Assets - Liabilities + Owner's Equity
      • "Real", "Permanent"
  • Income Statement Accounts
      • Revenues - Expenses
      • "Nominal", " Temporary"

Ahmed Elshahat

2 the recording process
2. The recording process
  • TRANSACTIONS
  • Source documents
  • Journal (General Journal):
  • ACCOUNT TERMINOLOGY
  • DOUBLE ENTRY ACCOUNTING
  • CHART OF ACCOUNTS
  • Journalizing
  • POSTING
  • TRIAL BALANCE

Ahmed Elshahat

transaction
Transaction
  • All financial dealings of the business must be:
    • identified - source document
    • recorded - in "journal"
    • summarized - statements and reports
  • Business Paper: Source document... proof transaction happened.
    • Ex.- check, invoice, receipt, etc.

Ahmed Elshahat

account terminology
ACCOUNT TERMINOLOGY
  • Asset: Resources owned by a business.
    • Ex.: Cash, Accounts Receivable, Supplies, Building, Land, etc.
  • Liabilities: Creditorship claims on total assets (debts).
    • Ex.: Accounts Payable, Notes Payable, Unearned Revenue, etc.
  • Owner's Equity Accounts: The ownership claim on total assets. Ex.: capital account, withdrawal account (drawing)
  • "Real" Accounts: Balance sheet accounts.
    • Ex.: assets, liabilities, owner's equity
  • "Nominal" Accounts (Temporary): Income statement accounts. Ex.: revenues, expenses
  • “T” Accounts: Used for working papers, teaching technique, etc. - not part of accounting records.
  • Balance-column Accounts: Ledger accounts.

Ahmed Elshahat

double entry accounting
DOUBLE ENTRY ACCOUNTING
  • Every transaction affects and is recorded in two or more accounts with equal debits and credits.
    • Debit - (Dr) Left side of an account
    • Credit - (Cr) Right side of an account

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journalizing
JOURNALIZING

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chart of accounts
CHART OF ACCOUNTS
  • Is a numeric listing of all the entity's assets, liabilities, equity, revenue and expense accounts;
  • Is used to code each transaction entered into the accounting system, and
  • Facilitates the uniform reporting process.

Ahmed Elshahat

chart of accounts1
CHART OF ACCOUNTS

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general journal
General Journal

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posting
Posting

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trial balance
TRIAL BALANCE

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ex trial balance
Ex. TRIAL BALANCE

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3 adjusting and closing entries
3. ADJUSTING AND CLOSING ENTRIES
  • WHAT ACCOUNTS ARE ADJUSTED?
  • WHY ADJUST?
  • Depreciation
  • Accrual Relationships
  • Types of Entries
  • INCOME STATEMENT PREPARATION
  • BALANCE SHEET PREPARATION
  • Closing Entries

Ahmed Elshahat

why adjust
WHY ADJUST?
  • Time Period Concept/Periodicity:
    • The idea that the life of a business is divisible into time periods of equal length. Ex: monthly, quarterly, annual... financial reports;
    • fiscal year
    • calendar year
    • natural business year

Ahmed Elshahat

why adjust cont
WHY ADJUST? (Cont.)
  • Realization Principle requires that revenue be assigned to the accounting period in which it is earned, rather than to the period it is collected in cash (this is the basis for accrual accounting)
  • Matching Principle requires that revenues and expenses be matched; all expenses incurred in earning a revenue must be deducted from the revenue in determining net income
  • "True picture" -- accuracy

Ahmed Elshahat

depreciation
Depreciation

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accrual relationships
Accrual Relationships

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types of entries
Types of Entries

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adjusting posting of adjusting entries
Adjusting -- Posting of Adjusting Entries
  • Exercise:The following unadjusted accounts and related balances are provided at September 30:
    • Accounts Receivable$2,400
    • Supplies1,200
    • Salary Payable-0-
    • Unearned Revenue500
    • Revenue15,000
    • Salary Expense2,100
    • Depreciation Expense-0-
    • Accumulated Depreciation3,000

Ahmed Elshahat

instructions
Instructions:
  • Open T-accounts and post the adjusting entries indicated from the following data:

(a) Supplies on hand, $200

(b) Revenue earned but not accrued, $900

(c) Unearned revenue earned but not recorded, $400

(d) Salary owed to employees, $700

(e) Depreciation of $200 is recognized.

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answer
Answer;

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summary
Summary

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closing entries
Closing Entries
  • PURPOSE OF CLOSING ENTRIES
  • WHAT ACCOUNTS ARE CLOSED?
  • STEPS IN MAKING CLOSING ENTRIES
  • SUMMARY OF THE CLOSING PROCESS

Ahmed Elshahat

purpose of closing entries
PURPOSE OF CLOSING ENTRIES
  • Closing Entries are made to clear and close nominal accounts (Revenue and Expense) and to transfer the amount of net income or loss to capital accounts (i.e. Owner's Equity).
  • Accounts to be closed are; Revenues, expenses, drawings, income.

Ahmed Elshahat

steps in making closing entries
STEPS IN MAKING CLOSING ENTRIES
  • Transfer credit balances from income statement to Income Summary
  • Transfer the debit balances from income statement to Income Summary
  • Transfer the Income Summary balance to the Capital account
  • Transfer the Withdrawals account balance to the Capital account

Ahmed Elshahat