bookkeeping & accounting chapter 1
TRANSCRIPT
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BOOKKEEPING &
ACCOUNTINGCLASS 1
Joan FerreiraHostos Community College
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Class Objectives
Explain what accounting is
Identify users and uses of accounting
Understand why ethics is a fundamental business
concept
Explain the meaning of generally accepted
accounting principles and the cost principle
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Objectives Cont.
Explain the difference between the cash method and
the accrual method.
State the basic accounting equation and explain the
meaning of assets, liabilities, and owners equity. Analyze the effect of business transactions on the basic
accounting equation
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What is accounting?
Accountingis an information system that
Identifies
Records
Maintains Analyzes
Financial activities in a household, small business,
company, non-profit organization, corporation, or
government.
the language of business."
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Accounting is used for
Internal Users
Insolvency (can we pay our bills?)
Budgeting and Planning (Can we give employees a
raise?) Costs of goods/services sold (how much profit do I get
from selling a shirt?)
Profitability (what product/service is making money?)
What else?
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Accounting is used for
External users
Profitability (is the company making money?)
Benchmarking (how is the company performing against
competition?) Credibility (would the company be able to pay me?)
Legal Compliance (is the company paying taxes?)
Assurance (is the company acting ethically?)
What else?
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Bookkeeping vs. Accounting
Accounting
Includes bookkeeping and so much more
Record, organize, maintain, analyze, communicate
Bookkeeping
The recording of economic events. One part of
accounting (record)
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The Accounting Profession
Public Accountants Service to the general public through the services they
perform. Bookkeeping, Tax Preparation, Consulting, Budgeting,
Financial Reporting, Financial Analysis, Audit. Private Accountants Individuals in companies involved in activities including
cost and tax accounting, systems, and internal auditing.
Not For Profit Accountants Reporting and control for government units,
foundations, hospitals, labor unions, universities, andcharities.
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Building blocks of Accounting
Ethics Standards by which actions are judged as right or
wrong, honest or dishonest.
Generally Accepted Accounting Principles (GAAP Established by the F.A.S.B and the S.E.C.
Assumptions Monetary Unit Only data that can be expressed in terms of money is
included in the accounting records. Economic Entity (as in separate) Includes any organization or unit in society.
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Basic Accounting Equation (HELLO)
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What are Assets?
Assetsare resources owned by a business.
They are used in carrying out such activities as
production, consumption and exchange.
(1) it must be owned by the organization, and
(2) it must have money value.
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Ownership and Money Value
OWNERSHIP is the exclusive right to possess, use,
enjoy, and dispose of property.
MONEY VALUE exists if a buyer is willing to pay
money to a seller for the property.
Which of these are assets?
Cash Automobile Rented Apartment Checks
Computer Library Book On
Loan
Clothing Postage Stamps
Grocery List Food
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Excersice
Prepare a list of ten assets that you personally
own.
Prepare a list of ten assets that a business
organization would own
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Types of Assets
Short Life (Current) vs. Long Life (Non-Current)
CURRENT ASSETS
Cash and other assists that can be turn into cash. (< 1yr)
INVESTMENTS Assets not used on the operation of organization but have
value. (> 1yr)
PROPERTY, PLANT, AND EQUIPMENT
Long-term or long-life assets
INTANGIBLE ASSETS
No physical substance, but have value (long term)
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Examples of Assets
Cash
Receivables (Money people owe you)
Office Building
Furniture & Fixtures
Office Equipment
Office Supplies
Inventory
Vehicle
Bond Purchases
Copyright
Franchise
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Test your knowledge
1. What is the difference between office supplies andoffice equipment?
2. A toner cartridge is considered an office supply,
even though it is an integral part of the computerprinter. why?
3. Will we replace a typewriter as frequently as atypewriter ribbon? Why or why not?
4. What type of asset is a supply? (Short-life or long-life?)
5. What type of asset is a computer? (Short-life orlong-life?)
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Recognizing Ownership
CAPITAL (EQUITY) is the ownership of the assets
of the business by the proprietor.
Seed money
Machinery Purchased
Supplies
Cash
Furniture
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Example
Ms. Taylor began a business on April I, 203,
contributing to the business the following assets:
Cash $3,000
Office Supplies $275
Office Equipment $700
Furniture and Fixtures $2,100
Ms Taylor Ownership is:
Hint: Assets = Capital
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Expressing Borrowed Assets
What if I borrow money to start my business?
LIABILITY is defined as the ownership of the
assets of a business by its creditors.
A creditor claims against assets
Existing debts and obligations
No Debt:
Assets = Capital (Owners Equity)
Debt:
Assets = Liability + Owners Equity (Less Capital)
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Examples of Liability (Debts)
Current Liabilities (less than 1 yr)
Accounts payableInvoiced bills
Accrued liabilitiesnot yet invoiced bills
Accrued wagescompensation earned but not yetpaid.
Deferred revenuemoney not yet earned.
Taxes PayableTaxes that need to be paid
Long Term Liabilities
Debt. Debt that is owed for more than 1 year.
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Test your knowledge
A sole proprietor has $14,000 in cash an borrows
$6,000 more from the local credit union to start
up a Child Care business.
How much cash does the sole proprietor has? Does that make him/her richer?
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Recording Investments and Drawings
Investments are the assets the owner puts in the
business increase owners equity
Purchase of a Car for the business
Initial public offering of a Corporation.
Investing in your Brothers Restaurant
Drawings are withdrawals of cash or other assets by the
owner for personal use .
Your Brother returns your investment with interest.
You take your car back from the company
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How is Owners Equity Affected?
INCREASES DECREASES
Investments
by Owner
Revenues
Owners
Equity
Withdrawals
by Owner
Expenses
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Exercise
A. L. Brandon is the owner of the Brandon Small
Appliance Repair Shop. On January I, 2013, the
assets, liabilities, and proprietor's capital in the
business were: Cash, $2,000; Accounts Receivable S400; Supplies,
$5OO; Equipment $6,000; Accounts Payable, S900; A.
L. Brandon Capital $8,000.
Lets first organize the beginning of year.
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January Accounting Events
1. Paid $3OO of the outstanding accounts payable.
2. Received $100 on account (part payment) from customers.
3. Purchased $250 worth of supplies on account (on credit}.
4. Returned a defective piece of equipment that was purchased last
month and received a cash refund of $1,200. 5. Borrowed $1,OOO from a supplier, giving word to repay the loan in
thirty days.
6. Paid creditor $200 on account (part payment).
7. Purchased equipment for $800, giving $200 cash and promising to
pay the balance in sixty days.
8. Bought supplies paying $65 cash.
9. Received a S250 check from customer on account.
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Summary (cont)
Liabilities(debt) are the claims upon the assets of
the business by its creditors. Liabilities may either
be short-term or long-term obligations.
Capitalis the ownershipof the assets of thebusiness by the proprietor.
The accounting equation is:
ASSETS = LIABILITIES + CAPITAL
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Next Class
FINANCIAL STATEMENTS
What are financial statements?
The Income Statement
The Statement of Capital
The Balance Sheet