BAF3M Fundementals of Accounting

What is Accounting?

Accounting Identifies

Records

Communicates

Is a System that

Relevant

Reliable

Comparable

Consistent

To help users make better decisions

This happens in either a Service Business (UPS) or a Merchandising Business (Walmart).

The Accounting CycleThere are 7 steps in the Accounting Cycle.

1. Journalize (Using the General Journal)2. Post (To Ledger Accounts – which are also known as

T- Accounts)3. Trial Balance (Can enter on the Worksheet)4. Adjustments (On the worksheet)5. Complete the Worksheet6. Financial Statements (Income Statement then the

Balance Sheet)7. Closing Entries (Closing the Temporary Accounts –

Drawings, Revenue, Expenses)

* The Accounting Cycle Handout*

We are going to start here

Unit # 1 – The Balance Sheet

Contains 3 headings: Assets = Liabilities + Owner’s Equity

Accounting is based off of this equation! You must know it!

This tells us the Financial Position of a Company!

Unit # 1 – The Balance Sheet What are Assets?

Anything that a Business (or Person) owns of value.

What are Liabilities? Anything that a Business (or Person)

owes of value. Therefore:

Assets = Owns Liabilities = Owes

Unit # 1 – The Balance Sheet So what are examples of Assets?

Cash ($ in the Bank) Accounts Receivable

$ that is owed to you by customers – aka. Your money in someone else's hands

Equipment Cars Computers Furniture (Desks, Chairs, Cubicles) Factory Land

A business owns these!

Unit # 1 – The Balance Sheet

What about Liabilities? Bank Loan Credit Card Debt Accounts Payable Wages Payable Salaries Payable Mortgage Payable

“Payables” are money that you owe to another business (ex. A Supplier)

Unit # 1 – The Balance Sheet Owner’s Equity

Net Worth of a Business (The Difference Between Assets & Liabilities).

There is only one Equity Account you need to know (as of now): Capital

Recall A = L + OE Therefore: A – L = OE

If A > L, the Business has a Positive Net Worth If A < L, the Business has a Negative Net Worth

Unit # 1 – The Balance Sheet Activity: You will get a card. Your goal is to find out

where you belong….Are you an Asset, Liability, or Owner’s Equity? A, L, OE Pictionary

You will be put into teams. Each team will get one answer to guess the “drawing” of the card.

The Answer will be either: Asset Liability Owner’s Equity

Unit # 1 – The Balance SheetTurn to Page 7

Step 1 – Prepare Headings Line 1 – Who? Line 2 – What? Line 3 – When?

Step 2 – List Assets on Left Side Put Assets in order of Liquidity

Liquidity means how fast the assets can be converted into cash.

Unit # 1 – The Balance Sheet Step 3 - List Liabilities on Right Hand Side

Put Liabilities in order of Maturity Maturity means that the bills (or accounts)

that are due first, are listed first. Step 4 – List Owner’s Equity on Right Hand

Side Step 5 – Make sure that your Assets (Left

Hand Side) and your Liabilities & Owner’s Equity (Right Hand Side) balance.

The Balance SheetPg 7 of your Textbook

Goldman's Gym

Balance Sheet

Sept. 30, 20XX

                 

  Assets               Liabilities              

  Cash               Accounts Payable              

 Accounts Receivable               Bank Loan              

  Computers               Mortgage Payable              

  Land               Total Liabilities              

  Building                              

  Training Equipment               Owner's Equity              

                  R. Millar, Capital              

                Total Liabilities & Owner's Equity

             

  Total Assets                            

Unit # 1 -The Balance Sheet

Liquidity Order Cash: Most Liquid Accounts Receivable: Paid within 30 Days Land, Building, Equipment: Longest life

remaining listed first

Maturity Order Accounts Payable: Due within 30 Days Bank Loan: Usually 1-5 Years Mortgage: Usually 25 Years

Users of the Balance Sheet Owners – Indicates the owners claim on

the business assets. Comparing Balance Sheets at different points in time will show whether the financial position is improving

Creditors – Companies considering

extending money are interested in the liquid assets available to meet payments as well as the claims on assets

Users of the Balance Sheet Investors – The Financial position of a

business is one of the main factors investors consider when deciding whether or not to invest in a business. They want to protect their investment and are interested in the same information as the creditors.

Government – Government departments need information for policy decision making, statistical reports, and taxation.

Balance Sheet Order Game

You will receive one card. You must rearrange yourselves in the

correct Balance Sheet order starting from the “Titles”, to Assets, to Liabilities, and finally to Owner’s Equity

GAAP’s

GAAP stands for Generally Accepted Accounting Principle.

There are many GAAP’s and will we cover each of them as they come up throughout the semester.

So far we have covered two. The Business Entity Principle The Cost Principle

GAAP’s so far….

Business Entity Principle The accounting for a business or

organization is kept separate from the personal affairs of its owner, other business or organization.

Cost Principle Items are recorded in the books at the

historical cost paid by the purchaser, and do not change from their original value.