ACCOUNTING = INFORMATION. ACCOUNTING RECORDING ECONOMIC INFORMATION ABOUT A BUSINESS ENTITY THAT WE...
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Transcript of ACCOUNTING = INFORMATION. ACCOUNTING RECORDING ECONOMIC INFORMATION ABOUT A BUSINESS ENTITY THAT WE...
ACCOUNTINGACCOUNTING
RECORDING ECONOMIC INFORMATIONRECORDING ECONOMIC INFORMATION ABOUT A BUSINESS ENTITY THAT WE ABOUT A BUSINESS ENTITY THAT WE
CLASSIFY, SUMMARIZE, AND CONVEY TO CLASSIFY, SUMMARIZE, AND CONVEY TO INTERESTED PARTIES SO THEY CAN INTERESTED PARTIES SO THEY CAN MAKE A WELL-INFORMED DECISIONMAKE A WELL-INFORMED DECISION
ACCOUNTING PERIODACCOUNTING PERIOD
PERIOD OF TIME COVERED BY THE PERIOD OF TIME COVERED BY THE FINANCIAL STATEMENTSFINANCIAL STATEMENTS
PREPARED AT LEAST ONCE A YEARPREPARED AT LEAST ONCE A YEAR– FISCAL PERIOD/ANNUAL REPORTFISCAL PERIOD/ANNUAL REPORT
MAY BE PREPARED MORE OFTENMAY BE PREPARED MORE OFTEN– INTERIM FINANCIAL STATEMENTSINTERIM FINANCIAL STATEMENTS
ACCOUNTING CYCLEACCOUNTING CYCLE
STEPS THE FINANCIAL STEPS THE FINANCIAL ACCOUNTANT GOES THROUGH ACCOUNTANT GOES THROUGH FROM THE FIRST DAY OF THE FROM THE FIRST DAY OF THE ACCOUNTING PERIOD UNTIL THE ACCOUNTING PERIOD UNTIL THE LAST DAY OF THE ACCOUNTING LAST DAY OF THE ACCOUNTING PERIOD (READY TO BEGIN THE NEXT PERIOD (READY TO BEGIN THE NEXT ACCOUNTING PERIOD)ACCOUNTING PERIOD)
STEPS IN THE ACCOUNTING STEPS IN THE ACCOUNTING CYCLECYCLE
1.1. TRANSACTIONTRANSACTION
2.2. RECORD IN THE JOURNAL BY MEANS OF RECORD IN THE JOURNAL BY MEANS OF A JOURNAL ENTRYA JOURNAL ENTRY
3.3. POST FROM THE JOURNAL TO THE POST FROM THE JOURNAL TO THE LEDGERLEDGER
4.4. PREPARE A TRIAL BALANCEPREPARE A TRIAL BALANCE
5.5. ANALYZE ACCOUNTS AND COMPLETE ANALYZE ACCOUNTS AND COMPLETE THE ADJUSTMENT PROCESSTHE ADJUSTMENT PROCESS
6.6. PREPARE AN ADJUSTED TRIAL BALANCEPREPARE AN ADJUSTED TRIAL BALANCE
STEPS IN THE ACCOUNTING STEPS IN THE ACCOUNTING CYCLECYCLE
7.7. DETERMINE WHICH FINANCIAL DETERMINE WHICH FINANCIAL STATEMENT ACCOUNT IS REPORTEDSTATEMENT ACCOUNT IS REPORTED
8.8. PREPARE FINANCIAL STATEMENTSPREPARE FINANCIAL STATEMENTS
9.9. JOURNALIZE/POST ADJUSTING ENTRIESJOURNALIZE/POST ADJUSTING ENTRIES
10.10. JOURNALIZE/POST CLOSING ENTRIESJOURNALIZE/POST CLOSING ENTRIES
11.11. PREPARE POST-CLOSING TRIAL PREPARE POST-CLOSING TRIAL BALANCEBALANCE
12.12. PREPARE REVERSING ENTRIESPREPARE REVERSING ENTRIES
TRANSACTIONTRANSACTION
EVENT THAT TAKES PLACE THAT EVENT THAT TAKES PLACE THAT CHANGES THE FINANCIAL POSTION OF CHANGES THE FINANCIAL POSTION OF THE COMPANY AND THEREFORE MUST BE THE COMPANY AND THEREFORE MUST BE RECORDED.RECORDED.
MUST MEET THE CRITERIA ESTABLISHED MUST MEET THE CRITERIA ESTABLISHED BY THE FASB CONCEPTSBY THE FASB CONCEPTS– RELEVANT/RELIABLE/ELEMENT/RELEVANT/RELIABLE/ELEMENT/
IDENTIFIABLE/MEASUREABLE/ETCIDENTIFIABLE/MEASUREABLE/ETC
DOCUMENTATION OF TRANSACTIONDOCUMENTATION OF TRANSACTION
JOURNAL ENTRYJOURNAL ENTRY
JOURNAL – A BOOK OR COMPUTER JOURNAL – A BOOK OR COMPUTER FILE IN WHICH ALL BUSINESS FILE IN WHICH ALL BUSINESS TRANSACTIONS ARE FIRST TRANSACTIONS ARE FIRST RECORDEDRECORDED
JOURNAL ENTRY – ENTER THE JOURNAL ENTRY – ENTER THE INFORMATION DESCRIBING THE INFORMATION DESCRIBING THE TRANSACTIONS INTO THE JOURNAL TRANSACTIONS INTO THE JOURNAL USING APPROPRIATE FORMATUSING APPROPRIATE FORMAT
CONSIDER THE FOLLOWING CONSIDER THE FOLLOWING FINANCIAL TRANSACTIONFINANCIAL TRANSACTION
THE TRANSACTIONS ARE THE TRANSACTIONS ARE PRESENTED IN CAPITAL LETTERS PRESENTED IN CAPITAL LETTERS AND THE CORRESPONDING ENTRY AND THE CORRESPONDING ENTRY MY BY THE “ACCOUNTANT” ARE MY BY THE “ACCOUNTANT” ARE WRITTEN WRITTEN in script fontin script font
THE OWNER OPENED A BUSINESS THE OWNER OPENED A BUSINESS CHECKING ACCOUNT BY CHECKING ACCOUNT BY
DEPOSTING $100,000 CASH FROM DEPOSTING $100,000 CASH FROM HIS PERSONAL CHECKING HIS PERSONAL CHECKING
ACCOUNT INTO THE BUSINESS ACCOUNT INTO THE BUSINESS CHEKING ACCOUNT ON 1/1/2002CHEKING ACCOUNT ON 1/1/2002 We could buy a note book and record the We could buy a note book and record the
following infofollowing info On January 1, 2002, the owner established a On January 1, 2002, the owner established a
business checking account by depositing business checking account by depositing $100,000 cash into the checking account.$100,000 cash into the checking account.
THE OWNER SIGNED A PROMISORY THE OWNER SIGNED A PROMISORY NOTE BORROWING $200,000 FROM NOTE BORROWING $200,000 FROM
THE BANK DUE IN FIVE YEARS AND THE BANK DUE IN FIVE YEARS AND DEPOSITED THAT AMOUNT ON DEPOSITED THAT AMOUNT ON
1/1/20021/1/2002
On January 1, 2002, the owner On January 1, 2002, the owner borrowed $200,000 cash from the borrowed $200,000 cash from the bank and deposited it into the bank and deposited it into the business checking account.business checking account.
THE OWNER SIGNED A REAL THE OWNER SIGNED A REAL ESTATE CONTRACT FOR ESTATE CONTRACT FOR
$25,000, WRITING A CHECK FOR $25,000, WRITING A CHECK FOR $5,000, AND SIGNED A $5,000, AND SIGNED A
PROMISSORY NOTE FOR $20,000PROMISSORY NOTE FOR $20,000 On January 1, 2002, the owner On January 1, 2002, the owner
purchased land for $25,000 – purchased land for $25,000 – making a down payment of $5,000 making a down payment of $5,000 and owing the balance due and owing the balance due evidenced by signing a promissory evidenced by signing a promissory note in the amount of $20,000.note in the amount of $20,000.
INVOICE FOR SUPPLIES USED INVOICE FOR SUPPLIES USED TO COMPLETE A JOB $500 AND TO COMPLETE A JOB $500 AND A COPY OF CHECK DRAWN ON A COPY OF CHECK DRAWN ON
BUSINESS CHECKING BUSINESS CHECKING ACCOUNT ON 1/31/02 ACCOUNT ON 1/31/02
• On January 31, 2002, the company On January 31, 2002, the company wrote a check for $500 for supplies wrote a check for $500 for supplies used by the company.used by the company.
INVOICE REPORING THE INVOICE REPORING THE COLLECTION OF $700 FOR COLLECTION OF $700 FOR
SERVICES RENDERED DATED SERVICES RENDERED DATED 1/31/021/31/02
On January 31, the company On January 31, the company received $700 for the completion received $700 for the completion of services rendered.of services rendered.
OWNER WITHDREW $100 OWNER WITHDREW $100 FOR PERSONAL USE, COPY FOR PERSONAL USE, COPY
OF CHECK 1/31/01OF CHECK 1/31/01 On January 31, 2002, the owner On January 31, 2002, the owner
withdrew $100 cash from the withdrew $100 cash from the business checking account for business checking account for personal use.personal use.
THE FOLLOWING SLIDE THE FOLLOWING SLIDE SUMMARIZES THE NOTEBOOK SUMMARIZES THE NOTEBOOK
ENTRIES FOR THE ENTRIES FOR THE TRANSACTIONS DESCRIBED TRANSACTIONS DESCRIBED
ABOVEABOVE
On January 1, 2002, the owner established a business On January 1, 2002, the owner established a business checking account by depositing $100,000 cash into the checking account by depositing $100,000 cash into the checking account.checking account.
On January 1, 2002, the owner borrowed $200,000 cash from On January 1, 2002, the owner borrowed $200,000 cash from the bank and deposited it into the business checking account.the bank and deposited it into the business checking account.
On January 1, 2002, the owner purchased land for $25,000 – On January 1, 2002, the owner purchased land for $25,000 – making a down payment of $5,000 and owing the balance due making a down payment of $5,000 and owing the balance due evidenced by signing a promissory note in the amount of evidenced by signing a promissory note in the amount of $20,000. $20,000.
On January 31, 2002, the company wrote a check for $500 for On January 31, 2002, the company wrote a check for $500 for supplies used by the company.supplies used by the company.
On January 31, the company received $700 for the completion On January 31, the company received $700 for the completion of services rendered.of services rendered.
On January 31, 2002, the owner withdrew $100 cash from the On January 31, 2002, the owner withdrew $100 cash from the business checking account for personal use. business checking account for personal use.
ARE WE ACCOMPLISHING THE ARE WE ACCOMPLISHING THE PROCESS OF ACCOUNTING THRU PROCESS OF ACCOUNTING THRU
THE RECORDING OF THE THE RECORDING OF THE TRANSACTIONS IN THE TRANSACTIONS IN THE
NOTEBOOK?NOTEBOOK?
YESYES RECORDING ECONOMIC RECORDING ECONOMIC
INFORMATIONINFORMATION
IS THIS THE MOST IS THIS THE MOST EFFICIENT METHOD TO EFFICIENT METHOD TO
ACCOMPLISH OUR GOAL? ACCOMPLISH OUR GOAL? WHAT AMOUNT OF ASSETS DO WE WHAT AMOUNT OF ASSETS DO WE
HAVE?HAVE? IS IT PROFITABLE SO FAR?IS IT PROFITABLE SO FAR? THIS FORMAT IS NOT CONDUCIVE TO THIS FORMAT IS NOT CONDUCIVE TO
EASILY CONVEYING THE EASILY CONVEYING THE INFORMATION WE HAVE RECORDED.INFORMATION WE HAVE RECORDED.
LET’S CHANGE THE FORMAT.LET’S CHANGE THE FORMAT.
ACCOUNTACCOUNT
INDIVIDUAL RECORD KEEP FOR INDIVIDUAL RECORD KEEP FOR EACH FINANCIAL ITEM THAT WE EACH FINANCIAL ITEM THAT WE WISH TO KEEP TRACK OFWISH TO KEEP TRACK OF
KEEP TRACK OF CASH = CASH KEEP TRACK OF CASH = CASH RECORD OR THE CASH ACCOUNTRECORD OR THE CASH ACCOUNT
KEEP TRACK OF ACCOUNTS KEEP TRACK OF ACCOUNTS PAYABLE = CASH PAY RECORD OR PAYABLE = CASH PAY RECORD OR ACCOUNTS PAYABLE ACCOUNTACCOUNTS PAYABLE ACCOUNT
ACCOUNT CLASSIFICATIONACCOUNT CLASSIFICATION EVERY FINANCIAL ITEM THAT WE EVERY FINANCIAL ITEM THAT WE
KEEP TRACK OF (ACCOUNT), FALLS KEEP TRACK OF (ACCOUNT), FALLS INTO ONE OF THREE INTO ONE OF THREE CLASSIFICATIONSCLASSIFICATIONS– ASSETSASSETS– LIABILITIESLIABILITIES– CAPITAL (OWNERS EQUITY/SH EQUITY)CAPITAL (OWNERS EQUITY/SH EQUITY)
ASSETSASSETS
ALL RIGHTS AND PROPERTIES ALL RIGHTS AND PROPERTIES OWNED BY THE BUSINESSOWNED BY THE BUSINESS
PROBABLE FUTURE ECONOMIC PROBABLE FUTURE ECONOMIC BENEFITSBENEFITS
LIABILITESLIABILITES
DEBTS OF THE BUSINESSDEBTS OF THE BUSINESS OBLIGATION OF THE BUSINESSOBLIGATION OF THE BUSINESS CREDITORS’ (SOMEONE WE OWE CREDITORS’ (SOMEONE WE OWE
MONEY TO) CLAIM AGAINST THE MONEY TO) CLAIM AGAINST THE ASSETS OF THE BUSINESSASSETS OF THE BUSINESS
CAPITALCAPITAL
NET WORTH OF THE OWNERSNET WORTH OF THE OWNERS RESIDUAL INTEREST IN THE RESIDUAL INTEREST IN THE
BUSINESSBUSINESS OWNERS’ CLAIM AGAINST THE OWNERS’ CLAIM AGAINST THE
ASSETS OF THE BUSINESSASSETS OF THE BUSINESS
ACCOUNTING EQUATIONACCOUNTING EQUATIONASSETS = LIABILITES + CAPITALASSETS = LIABILITES + CAPITAL
RECORD THE ABOVE RECORD THE ABOVE TRANSACTIONS ON SLIDE 18 IN THE TRANSACTIONS ON SLIDE 18 IN THE ACCOUNTING EQUATION FORMAT ACCOUNTING EQUATION FORMAT
PRESENTED ON THE NEXT SLIDE #27PRESENTED ON THE NEXT SLIDE #27
RECORDING TRANSACTIONS IN RECORDING TRANSACTIONS IN THE ACCOUNTING EQUATIONTHE ACCOUNTING EQUATION
DATEDATE ASSETS =ASSETS = LIABILITIES +LIABILITIES + CAPITALCAPITAL
1/1/021/1/02 +100,000+100,000 00 +100,000+100,000