Accelerated Accounting

Mr. SherpinskyCouncil Rock School District

Begin the Adventure!

Assess Yourself in Terms of a Career Vision

What are your personal interests and skills?

What are your values, and how will they affect your career?

What lifestyle interests you? How will your personality

affect a career choice?

Interests, Skills, & Traits

Enjoy Life 100 times more likely to enjoy a

career that uses your interests, skills, and traits

92% say more satisfied*

Unique combination = Your unique selling point Figuring out what you are good

▪ It will help you determine what careers are the best fit for you

*- BLS/gov

Skills

Skills Activities you do well

Values

Values Principles you live by and the

beliefs that are important to you: Responsibility Achievement Relationships Compassion Courage Recognition

Examples of Values

responsibility achievement

relationships

compassioncourage

recognition

valuesThe principles a person lives by and the beliefs that are important to the person.

Lifestyle Goals

Lifestyle The way you use your time,

energy, and resources

Personality Traits

Personality A set of unique qualities

that makes us different from all other people

New World= Potential

Accountant Handles a broad range of

responsibilities, makes business decisions, and prepares and interprets financial reports▪ Can’t do without these

basic skills!

New World= Potential

Accounting Clerk Entry-level job that can

vary from specializing in one part of the system to doing a wide range of tasks▪ Can be a stepping stone

to more!

Types of Organizations

For-Profit Business Operates to earn money

for their owners! Majority of businesses in

US Computers handle

majority of basic accounting tasks▪ Fortune 500▪ National Firms▪ Local Firms

Types of Organizations

Not-For-Profit Business Operates for purposes

other than making a profit!

Most have goal of balancing their income and expenses▪ Donations▪ Tax dollars

▪ Many are service providers

Public Accounting Firms

Public Accounting Firms Provide variety of services

including auditsAudits:

Review of a company’s accounting systems and financial statements to confirm they comply with GAAP▪ Generally Accepted

Accounting Practices

Public Accounting Firms

CPAs (certified Public Accountant) An accountant that met

certain education and experience requirements and passed a national test

Licenses by state

Environment of Business

The Environment of BusinessIn the U.S. we have a free enterprise system; people are free to produce goods and services and spend money as they wish.

A business can operate at a profit or a loss. If the revenues are greater than the costs, the money left over is profit. When costs are greater than revenues, the business operates at a loss.

In order to survive, a business must do two things… operate at a profit, and have an individual willing to take the risk to run it.

Traits of Entrepreneurs

Roles ina Business

Inventors

Investors

EmployeesManagers

Entrepreneurs

entrepreneurA person who

transforms ideas for products or services

into real-world businesses.

The Need for a Risk-TakerAn entrepreneur transforms ideas for products or

services into actual (real-world) businesses.

Types and Forms of Business

Types of Business OperationsThere are three types of business operations:

Service businesses provide services for fees. Merchandising businesses buy and sell finished

products. Manufacturing businesses buy materials and make

finished products.

service business

A business that provides a

needed service for a fee.

merchandising business

A business that buys finished products and

resells them to individuals or other

businesses.

manufacturing businessA business that buys raw materials, uses labor and

machinery to transform them into finished products, and

sells the finished products to individuals or other

businesses.

Types and Forms of Business

Types and Forms of BusinessIn a free enterprise system, an entrepreneur can

choose the type and form of business to run.

Each type needs capital (money) from investors, banks, or business owners to

begin.

Forms of Business Organization

Sole ProprietorshipSole means “single” and proprietor means “owner.” – Most common in US! A sole proprietor is a single owner, but the

operation may have many managers and employees.

There are advantages and disadvantages to being a sole proprietor.

Forms of Business Organization

Partnership When two people or more people enter into

an agreement to operate a business as co-owners, a partnership is formed.

There are advantages and disadvantages to a partnership.

Forms of Business Organization

Corporation A corporation often starts off as a sole

proprietorship or partnership. In order to become a corporation an organization must obtain a charter (legal permission to operate).

There are advantages and disadvantages to a corporation.

Questions for Review

Main IdeaAccounting: Universal Language

of BusinessThe accounting system produces

information used to make decisions.

The Accounting System

accounting systemDesigned to collect, document, and report

on financial transactions affecting the business.

Language of Business

Accountants must follow GAAP rules issued by the Financial Accounting Standards Board (FASB).

GAAP (generally accepted accounting principles)The set of rules that all accountants use to prepare

financial reports.

What is GAAP?

Language of Business

What Are

financial reports?

financial reportsDocuments that present summarized information

about the financial status of a business.

Financial reports contain a summary of the financial status of a business.

Most common time-period for reports is annual.. (Yearly)

Language of Business

Using Accounting Reports for Making Business Decisions

Accounting provides financial information about a business or organization.

Two groups that useaccounting reports

Individuals outside the business who have an interest in the business

Individuals inside the business

investors, the local, state, and federal

government, and employees, consumers, and

competitors.

managers, owners

Making Business Decisions

Those interested in the financial accounting reports of a business include:

InvestorsLocal, state, and

federal government

Employees, consumers, and

competitors

financial accountingThe type of accounting that focuses on reporting information to external users.

Making Business Decisions

Management accounting reports are prepared for managers involved in:

management accountingThe type of accounting that focuses on reporting information to management; often referred to as

accounting for internal users of accounting information.

Purchasing decisionsHiring decisionsProduction decisionsPaymentsSalesCollections

Accounting Assumptions

Three GAAP Assumptions

Business entity

Accounting period

Going concern

business entityThe accounting assumption that a business exists independently of its owner’s personal holdings.

The accounting records and reports are maintained separately and contain financial information

related only to the business.

Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Financial Claims in AccountingA company can possess various property or items of value, known as assets:

cash office equipment manufacturing equipment buildings land

Equities are financial claims to these assets. When a business obtains a loan to help purchase an item, the owner’s financial claims to the assets are called the owner’s equity.

Property and Financial ClaimsSECTION 3.1

Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Financial Claims in AccountingThe creditor’s financial claims to the assets are called liabilities. The relationship between assets, liabilities, and owner’s equity are shown in the accounting equation:

Property and Financial ClaimsSECTION 3.1

Glencoe Accounting

PropertyProperty andFinancial Claims

Section 3.1

A creditor lends you money.

You buy something on credit.

The financial claim is shared.

creditWhen you buy something and

agree to pay for it later.

creditorAny person or business to

which you owe money.

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Glencoe Accounting

PropertyProperty andFinancial Claims

Section 3.1

The purpose of accounting is to provide:

Financial information about property

Financial claim to property

propertyAnything of value that a person or business

owns.

financial claimA legal right to

property.

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Glencoe Accounting

PropertyProperty andFinancial Claims

Section 3.1

Property = FinancialClaims

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Glencoe Accounting

PropertyThere is a relationship between property and financial claims that can be expressed as an equation:

PROPERTY = FINANCIAL CLAIMSWhen you buy something and agree to pay for it later, you are buying it on credit, and you share the financial claim with the creditor (the business or person selling you the item on credit).

Glencoe Accounting

Financial Claims in Accounting

Property andFinancial Claims

Section 3.1

Equity or Equities

Owner’sEquity

equityThe accounting term for the

financial claim to assets.

owner’s equityThe owner’s claim to the

assets of a business.

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Glencoe Accounting

Financial Claims in Accounting

Property andFinancial Claims

Section 3.1

The Accounting Equation

liabilitiesAmounts owed to creditors; the

claims of creditors to the assets of a business.

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Glencoe Accounting

Business Transactions

business transactionAn economic event that causes a

change—either an increase or decrease—in assets, liabilities,

and/or owner’s equity.

Section 3.2

Buying a sweater or putting cash in your savings account are examples of

business transactions.

Transaction That Affect Owner’s Investment, Cash, and Credit

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Effects of Transactions

Glencoe Accounting

The number of accounts will vary from business to business. Two possible business accounts are

accounts receivable, an asset account, and accounts payable, a liability account.

Glencoe Accounting

Business TransactionsSection 3.2

A business records changes in subdivisions called

accounts.

Accounts receivable

Accounts payable

accountA subdivision under assets, liabilities, or owner’s equity.

Transaction That Affect Owner’s Investment, Cash, and Credit

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accounts receivable, an asset account

accounts payable, a liability account.

Glencoe Accounting

Business Transactions

A business records changes in subdivisions called

accounts.

Accounts receivable

Accounts payable

accounts receivableThe total amount of money owed

to a business—money to be received later because of the sale

of goods or services on credit.

accounts payableThe amount owed, or payable, to the

creditors of a business.

Section 3.2Transaction That Affect Owner’s Investment, Cash, and Credit

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accounts receivable, an asset account

accounts payable, a liability account.

Glencoe Accounting

Revenue and Expense Transactions

Section 3.3

Examples of Expenses

Rent

Utilities

Advertising

expenseThe cost of products or services used to operate a business.

Transaction That Affect Revenue, Expense, and Withdrawals by the Owner

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Glencoe Accounting

Withdrawals by the Owner

Section 3.3

Withdrawals decrease assets and owner’s equity.

Investments increase assets and owner’s equity.

withdrawalWhen the owner takes cash or other assets from the business

for personal use.

Transaction That Affect Revenue, Expense, and Withdrawals by the Owner

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Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

A business’s transactions can be analyzed by using the double-

entry accounting system, which recognizes the different sides of business transactions as debits

and credits.Home

Glencoe Accounting Unit 2 Chapter 4 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Chart of AccountsA chart of accounts is a list of accounts used by a business.

Accounts are grouped together in a ledger, also known as a general ledger. • “Keeping the books” refers to maintaining

accounts in the ledger.• Accounts are easier to locate in the ledger if

they are numbered.• A chart of accounts is organized as a table

SECTION 4.1

Section 4.1

Glencoe Accounting

The Chart of Accounts

ledgerA group of accounts; also referred to as a general

ledger.

Accounts and the Double-Entry Accounting System

Section 4.1

A system for numbering accounts makes it easy to locate individual accounts in the ledger.

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Glencoe Accounting

The Chart of AccountsAccounts and the Double-Entry Accounting System

Section 4.1

A typical numbering system

Asset accounts begin with 1.

Liability accounts begin with 2.

Owner’s equity accounts begin with 3.

Revenue accounts begin with 4.

Expense accounts begin with 5.

See page 82Home

Glencoe Accounting

Double-Entry AccountingAccounts and the Double-Entry Accounting System

Section 4.1

The double-entry accounting system recognizes both the debit and credit side of a business transaction.

double-entry accountingA system used to analyze and record

a transaction.

debitAn entry on the left side of an account.

creditAn entry on the right side of an account.

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Double-Entry Accounting

Double-Entry AccountingDouble-entry accounting is a system

of recordkeeping in which each business transaction affects at least two accounts.

Glencoe Accounting

Accounts and the Double-Entry Accounting System

Section 4.1

Glencoe Accounting Unit 2 Chapter 4 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

T AccountsThe T account is a tool for using the double-entry accounting system. It shows the dollar increase and

decrease caused by a transaction. Account name is on the top. The left side is used for debits. The right side is used for credits.

SECTION 4.1

Glencoe Accounting

Double-Entry AccountingAccounts and the Double-Entry Accounting System

Section 4.1

The T account gets its name from being shaped like a T.

T-accountA visual representation of a

ledger account. The T account is a tool used to analyze

transactions.

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Accountants sometimes use DR for debit and CR for credit.

Glencoe Accounting

Double-Entry AccountingAccounts and the Double-Entry Accounting System

Section 4.1

normal balanceThe increase side of an account.

The word normal here means usual.Home

Glencoe Accounting Unit 2 Chapter 4 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Rules of Debit and Credit In double-entry accounting, for each debit

in one account, there must be an equal credit in another account.

The rules of debit and credit vary depending on the type of account.

Each account has a normal balance to record increases to the account. The word normal in this case means usual.

Accounts and the Double-Entry Accounting SystemSECTION 4.1

Glencoe Accounting

Double-Entry AccountingAccounts and the Double-Entry Accounting System

Section 4.1

Rules for Asset Accounts

It is increased (+) on the debit side (left side).

It is decreased (-) on the credit side (right side).

The normal balance is the increase or debit side.

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Glencoe Accounting

Double-Entry AccountingAccounts and the Double-Entry Accounting System

Section 4.1

Rules for Liability and Owner’s Capital Accounts

It is increased ( + )on the credit side (right side).

It is decreased ( - )on the debit side (left side).

The normal balance is the increase or credit side.

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Practice Concept: T Accounts in Action

Glencoe Accounting

Accounts and the Double-Entry Accounting System

Section 4.1

Glencoe Accounting

Temporary and Permanent Accounts

Section 5.1

Temporary Accounts

Start the accounting period with a zero balance.

Accumulate amounts for one accounting period.

Transfer the balance to the owner’s capital account at the end of the period.

temporary accountsAccounts used to collect information that will be

transferred to permanent capital accounts at the end of the accounting period.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity

Glencoe Accounting

The Rules of Debit and Credit for Temporary AccountsReview the T account showing the rules of debit and credit for the owner’s capital account:

Glencoe Accounting

Temporary and Permanent Accounts

Section 5.1

PermanentAccounts show:

The balances on hand or amounts owed at any time

The day-to-day account changes

permanent accountsAccounts that are continuous from one accounting

period to the next; balances are carried forward to the next period.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity

Glencoe Accounting

The Rules of Debit and Credit for Temporary Accounts

Section 5.1

These rules of debit and credit are used for revenue accounts:

A revenue account is increased on the credit side.

A revenue account is decreased on the debit side.

The normal balance for an revenue account is the increase or the credit side. Revenue accounts normally have credit balances.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity

Glencoe Accounting

The Rules of Debit and Credit for Temporary Accounts

Section 5.1Relationship of Revenue, Expenses,

and Withdrawals to Owner’s Equity

See page 110

Rules for Revenue AccountsThese rules of debit and credit are used for revenue accounts:

A revenue account is increased on the credit side. A revenue account is decreased on the debit side. Revenue accounts normally have credit balances.

Glencoe Accounting

The Rules of Debit and Credit for Temporary Accounts

Section 5.1

These rules of debit and credit are used for expense accounts:

An expense account is increased on the debit side.

An expense account is decreased on the credit side.

The normal balance for an expense account is the increase or the debit side. Expense accounts normally have debit balances.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity

Glencoe Accounting

The Rules of Debit and Credit for Temporary Accounts

Section 5.1

These rules of debit and credit are used for withdrawals accounts:

A withdrawals account is increased on the debit side.

A withdrawals account is decreased on the credit side.

The normal balance for a withdrawals account is the increase or the debit side. Withdrawals accounts normally have debit balances.

Relationship of Revenue, Expenses, and Withdrawals to Owner’s Equity

Glencoe Accounting

Key Term Reviewrevenue recognition

The GAAP principle that revenue is recorded on the date it is earned even if cash has not been received.

Glencoe Accounting

The Steps of the Accounting Cycle

The Accounting CycleSection 6.1

Transactionsare entered into

a journal.This is

journalizing.

journalA chronological record of the transactions of a

business.

journalizingThe process of recording business transactions.