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Introduction to Basic

 Accounting Concepts1

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Objectives2

Concepts and principles of accounting

Balance Sheet & Income statement equations

Primary accounts for assets, liabilities, revenues and

expenses Use of t-accounts to practice posting of transactions

Define double-entry accounting

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The Income Statement3

Know (memorize!) this formula

Rev-COGS = GP-O/A Exp= NP Revenue (Rev): what is generated by sale of prescriptions or

other merchandise. Can also be service fees for patient care

Cost of Goods Sold (COGS): reflective of purchases in theaccounting period and beginning and ending inventories

Operating/Admin expenses (O/A Exp)—give some examples

 What does GP mean. How about NP (net profit)

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Introduction to Bookkeeping4

 What is a Journal?

 What is a ledger?

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The Journal5

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Journal Entry-Inflow of Cash from Owner6

source: unknown

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Journal Entry-Paid Cash for Supplies7

Source: unknown

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The Account-Starting to Learn Accounting-Traditional Teaching

8

For teaching purposes, we portray accounts in simpleformat called T-accounts

The left side of the T is called the DEBIT side

The right side of the T is called the CREDIT side

Depending on the account, a debit or credit can signify anincrease or decrease in the value of that account

NOTE: Do not fall into this trap! Generally in business,debits enhance the business-credits take away from the business. Debit DOES NOT MEAN POSITIVE

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Tricks of the Trade-Focus on Debit Side-MEMORIZE!!

9

   ASSETS = LIABILITIES +OWNER’S EQUITY  

Debit Credit Debit Credit Debit Credit

  ↑  ↓  ↓  ↑  ↓  ↑ 

Capital…………… ↑ are credits Withdrawals…….. ↑ are debits 

Revenues (Sales)… ↑ are credits 

Expenses……… ↑ are debits

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Tricks of the Trade-focus on Debits10

How do we record an Asset?

How do we record Liabilities?

Lets do an exampleReceive $300 in cash from sales

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Recording of Cash-Journal Account11

CASH

Debit (Db) Credit (Cr.)

300

Note: I am not showing the double entrybookkeeping

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Recording of Sales- Journal entry 12

Sales

Debit (Db) Credit (Cr.)

300

Note: see last slide for double entry

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Debits & Credits for Owner’s Equity. 13

Temporary subdivisions of retained earnings(nominal accounts). The following is often confused!

Revenue (Sales)

Increases in revenue are recorded as credits? Why 

 Value of the transaction is favorable to owner (increases thedollar amount of equity owed to the owner

Expenses

Increases in expenses are recorded as debits? Why 

Transaction causes money to flow out of the business thusreducing the value of equity owed to the owner

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Revenue & Expenses affects Equity 14

   ASSETS = LIABILITIES +OWNER’S EQUITY  

Debit Credit Debit Credit Debit Credit

  ↑  ↓  ↓  ↑  ↓  ↑ 

Capital…………… ↑ are credits 

Withdrawals…….. ↑ are debits 

Revenues (Sales)… ↑ are credits 

Expenses……… ↑ are debits