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Introduction to Accounting

Introduction to Accounting. What is accounting?. the system of recording and summarizing financial transactions and analyzing, verifying, and reporting the results http://www.merriam-webster.com/dictionary/accounting. Who uses accounting?. Everyone !

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Introduction to Accounting

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  1. Introduction to Accounting

  2. What is accounting? the system of recording and summarizing financial transactions and analyzing, verifying, and reporting the results http://www.merriam-webster.com/dictionary/accounting

  3. 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).

  4. Key Terms • Assets – things you own • Liabilities – a debt or obligation (money owed) • Owner’s Equity = Assets - Liabilities • Income – a monetary gain (usually from the sale of products or services) • Expenses – financial burdens; cost

  5. What is credit & debit? • Credit – entry on the right side of an account • Debit – entry on the left side of an account Account Name Debit Credit

  6. Example of Debit & Credit Type of Account Asset Account Asset Account Debit Increases Credit Decreases In this example, your parents gave you $150 cash and you spend $100 on clothes.

  7. Example of Debit & Credit Type of Account Asset Account Asset Account Debit Increases Credit Decreases In this example, your parents gave you $150 cash and you spend $100 on clothes. Cash 150 100 50 What is the balance of your cash account?

  8. Tips • Asset accounts, which are debit accounts, include cash, accounts receivable (money owed by others for goods sold on credit), inventory, prepaid expenses, plants and equipment, office supplies, and investments. • Liabilities, which are credit accounts, include accounts payable (money owed to other businesses or individuals), notes payable and long-term debt (money the company promises to pay on a future date), and unearned fees (money received in advance). • Remember that debit means left side and credit means right side. • Remember that for every transaction, The Sum of Debits = The Sum of Credits. The left side of the balance sheet must balance the right side: Assets = Liabilities + Owners' Equity. • Owners' equity, a credit account, include capital invested by the original investors and retained earnings and surplus.

  9. Financial Statements • Balance Sheet - An official financial statement that includes the company’s assets and liabilities. It determines 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.

  10. BCS III – Accounting UnitEssential Questions • What are debits? credits? • What are the basic account types? • What is an Income Statement? • What is a Balance Sheet?

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