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Chapter 1

Chapter 1. Accounting in Action. How Will Accounting Help Me?. Used in Any Profession Used as a Career Choice Used for Personal Investments and Financial Decisions Used for College Credit Used as Your 4 th Year Math Class. Type of Accounting Jobs. Accounting Clerk Banking Clerk

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Chapter 1

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  1. Chapter 1 Accounting in Action

  2. How Will Accounting Help Me? • Used in Any Profession • Used as a Career Choice • Used for Personal Investments and Financial Decisions • Used for College Credit • Used as Your 4th Year Math Class

  3. Type of Accounting Jobs • Accounting Clerk • Banking Clerk • Office Manager • General Accountant • Corporate Accountant • Tax Accountant • Auditor (Private and Government) • IRS • Forensic Accounting

  4. What Do Accountants Do? • Identify • What transaction occurred? • Record • Classify the transaction • Communicate • Prepare accounting reports

  5. Ethics in Accounting • Because of previous events • Sarbanes-Oxley Act of 2002 (SOX) • Use of outside auditors • Responsibility of upper management

  6. Standards in Accounting • GAAP – Generally Accepted Accounting Principles • FASB – Financial Accounting Standards Board • SEC – Securities and Exchange Commission • IASB - International Accounting Standards Board • Monetary Unit Assumption – Record only transactions that can be expressed in money • Economic Entity Assumption – Records of a company do not include personal data

  7. Economic Entities • Proprietorship • One Owner • Personally responsible for losses • Keep all profits • Only as long as the owner is alive • Partnership • Two or more owners • Personally responsible • Limited Liability partnership • Divide losses and profits

  8. Basic Accounting Equation • Assets = Liabilities + Owner’s Equity • What a Company OWNS • Cash • Accts. Rec • Buildings • Vehicles • Supplies • Inventory • What a company • OWES • Mortgage • Loans • Accts Pay • Notes Ppay • What a Company • Is WORTH • Assets – Liab • Investments • Revenue (Add) • Earned Income • Expenses (Subtract) • Cost of doing business • Drawings (Subtract) • Owner takes money from their • business

  9. Transaction AnalysisAssets = Liabilities + Owners Equity • Analyze • What type of accounts were affected • Evaluate/Compute • What is the amount that should be recorded • Record • Double Entry Accounting: Amount recorded in at least two places • Check • Is Accounting Equation still in balance??? Page 33 BE 1-5, BE 1-8

  10. Pages 14-19 • Read and Analyze • Do E1-8 Page 37 • Do Problems: Set A • P1-1A (Instruction A) • P1-2A (Instruction A)

  11. Communicate • Income Statement • Presents the revenues and expenses and resulting net income or loss for a period of time (month, quarter or year) Income – Expenses = Net Income or Loss If total income is more than total expenses, then you have a net income If total income is less than total expenses, then you have a net loss Let’s look at Page 21 ***Double Line means this is your final answer

  12. Communicate • Owner’s Equity Statement • Summarizes changes in owner’s equity for a specific period of time (month, quarter, year) • Let’s look at Page 21 • Beginning Capital • Add: Investments (if any were made) • Add: Net Income (from Income Statement) • Subtract (less) Drawings • Subtract Net Loss • = Owner’s equity at end of period

  13. Communicate • Balance Sheet • Reports the assets, liabilities and owner’s equity on a very specific date (end of month, end of quarter, end of year) • Let’s Look at Page 21 • Note: This is really the accounting equation in balance • Total Assets = Liabilities & O.E. • New Capital comes from OE Statement • ****Double Line means your final answer and you say everything is correct****

  14. Communicate • Statement of Cash Flow • Summarizes information about the cash inflows and outflows

  15. Continue Problems • Problem 1-4A (Instructions A,B,C)

  16. Test Review • Define: • Asset, Liability, Owner’s Equity • Revenue and Expenses • Describe: • The Accounting Equation • The use of a double line in accounting • What is the role of an accountant • Explain: • What are the Financial Statements and what does each summarize • Analyze: • Problem similar to Problem 1-2A (Income State, Owner’s Equity Statement and Balance Sheet)

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