7/29/2019 Intro to Basic Accounting Concepts
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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