Post on 04-Jan-2016
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! • 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).
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
What is credit & debit?
• Credit – entry on the right side of an account
Account Name
CreditDebit
• Debit – entry on the left side of an account
Example of Debit & CreditAsset Account
In this example, your parents gave you $150 cash and you spend
$100 on clothes.
Asset Account
Credit
Decreases
Debit
Increases
Type of Account
Example of Debit & CreditAsset Account
What is the balance of your cash account?
100150
Cash
In this example, your parents gave you $150 cash and you spend
$100 on clothes.
50
Asset Account
Credit
Decreases
Debit
Increases
Type of Account
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.
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.
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?