Bookkeeping & Accounting Chapter 1

8/14/2019 Bookkeeping & Accounting Chapter 1

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BOOKKEEPING &

ACCOUNTINGCLASS 1

Joan FerreiraHostos Community College


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Class Objectives

Explain what accounting is

Identify users and uses of accounting

Understand why ethics is a fundamental business

concept

Explain the meaning of generally accepted

accounting principles and the cost principle


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Objectives Cont.

Explain the difference between the cash method and

the accrual method.

State the basic accounting equation and explain the

meaning of assets, liabilities, and owners equity. Analyze the effect of business transactions on the basic

accounting equation


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What is accounting?

Accountingis an information system that

Identifies

Records

Maintains Analyzes

Financial activities in a household, small business,

company, non-profit organization, corporation, or

government.

the language of business."


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Accounting is used for

Internal Users

Insolvency (can we pay our bills?)

Budgeting and Planning (Can we give employees a

raise?) Costs of goods/services sold (how much profit do I get

from selling a shirt?)

Profitability (what product/service is making money?)

What else?


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Accounting is used for

External users

Profitability (is the company making money?)

Benchmarking (how is the company performing against

competition?) Credibility (would the company be able to pay me?)

Legal Compliance (is the company paying taxes?)

Assurance (is the company acting ethically?)

What else?


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Bookkeeping vs. Accounting

Accounting

Includes bookkeeping and so much more

Record, organize, maintain, analyze, communicate

Bookkeeping

The recording of economic events. One part of

accounting (record)


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The Accounting Profession

Public Accountants Service to the general public through the services they

perform. Bookkeeping, Tax Preparation, Consulting, Budgeting,

Financial Reporting, Financial Analysis, Audit. Private Accountants Individuals in companies involved in activities including

cost and tax accounting, systems, and internal auditing.

Not For Profit Accountants Reporting and control for government units,

foundations, hospitals, labor unions, universities, andcharities.


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Building blocks of Accounting

Ethics Standards by which actions are judged as right or

wrong, honest or dishonest.

Generally Accepted Accounting Principles (GAAP Established by the F.A.S.B and the S.E.C.

Assumptions Monetary Unit Only data that can be expressed in terms of money is

included in the accounting records. Economic Entity (as in separate) Includes any organization or unit in society.


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Basic Accounting Equation (HELLO)


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What are Assets?

Assetsare resources owned by a business.

They are used in carrying out such activities as

production, consumption and exchange.

(1) it must be owned by the organization, and

(2) it must have money value.


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Ownership and Money Value

OWNERSHIP is the exclusive right to possess, use,

enjoy, and dispose of property.

MONEY VALUE exists if a buyer is willing to pay

money to a seller for the property.

Which of these are assets?

Cash Automobile Rented Apartment Checks

Computer Library Book On

Loan

Clothing Postage Stamps

Grocery List Food


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Excersice

Prepare a list of ten assets that you personally

own.

Prepare a list of ten assets that a business

organization would own


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Types of Assets

Short Life (Current) vs. Long Life (Non-Current)

CURRENT ASSETS

Cash and other assists that can be turn into cash. (< 1yr)

INVESTMENTS Assets not used on the operation of organization but have

value. (> 1yr)

PROPERTY, PLANT, AND EQUIPMENT

Long-term or long-life assets

INTANGIBLE ASSETS

No physical substance, but have value (long term)


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Examples of Assets

Cash

Receivables (Money people owe you)

Office Building

Furniture & Fixtures

Office Equipment

Office Supplies

Inventory

Vehicle

Bond Purchases

Copyright

Franchise


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Test your knowledge

1. What is the difference between office supplies andoffice equipment?

2. A toner cartridge is considered an office supply,

even though it is an integral part of the computerprinter. why?

3. Will we replace a typewriter as frequently as atypewriter ribbon? Why or why not?

4. What type of asset is a supply? (Short-life or long-life?)

5. What type of asset is a computer? (Short-life orlong-life?)


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Recognizing Ownership

CAPITAL (EQUITY) is the ownership of the assets

of the business by the proprietor.

Seed money

Machinery Purchased

Supplies

Cash

Furniture


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Example

Ms. Taylor began a business on April I, 203,

contributing to the business the following assets:

Cash $3,000

Office Supplies $275

Office Equipment $700

Furniture and Fixtures $2,100

Ms Taylor Ownership is:

Hint: Assets = Capital


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Expressing Borrowed Assets

What if I borrow money to start my business?

LIABILITY is defined as the ownership of the

assets of a business by its creditors.

A creditor claims against assets

Existing debts and obligations

No Debt:

Assets = Capital (Owners Equity)

Debt:

Assets = Liability + Owners Equity (Less Capital)


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Examples of Liability (Debts)

Current Liabilities (less than 1 yr)

Accounts payableInvoiced bills

Accrued liabilitiesnot yet invoiced bills

Accrued wagescompensation earned but not yetpaid.

Deferred revenuemoney not yet earned.

Taxes PayableTaxes that need to be paid

Long Term Liabilities

Debt. Debt that is owed for more than 1 year.


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Test your knowledge

A sole proprietor has $14,000 in cash an borrows

$6,000 more from the local credit union to start

up a Child Care business.

How much cash does the sole proprietor has? Does that make him/her richer?


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Recording Investments and Drawings

Investments are the assets the owner puts in the

business increase owners equity

Purchase of a Car for the business

Initial public offering of a Corporation.

Investing in your Brothers Restaurant

Drawings are withdrawals of cash or other assets by the

owner for personal use .

Your Brother returns your investment with interest.

You take your car back from the company


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How is Owners Equity Affected?

INCREASES DECREASES

Investments

by Owner

Revenues

Owners

Equity

Withdrawals

by Owner

Expenses


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Exercise

A. L. Brandon is the owner of the Brandon Small

Appliance Repair Shop. On January I, 2013, the

assets, liabilities, and proprietor's capital in the

business were: Cash, $2,000; Accounts Receivable S400; Supplies,

$5OO; Equipment $6,000; Accounts Payable, S900; A.

L. Brandon Capital $8,000.

Lets first organize the beginning of year.


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January Accounting Events

1. Paid $3OO of the outstanding accounts payable.

2. Received $100 on account (part payment) from customers.

3. Purchased $250 worth of supplies on account (on credit}.

4. Returned a defective piece of equipment that was purchased last

month and received a cash refund of $1,200. 5. Borrowed $1,OOO from a supplier, giving word to repay the loan in

thirty days.

6. Paid creditor $200 on account (part payment).

7. Purchased equipment for $800, giving $200 cash and promising to

pay the balance in sixty days.

8. Bought supplies paying $65 cash.

9. Received a S250 check from customer on account.


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Summary (cont)

Liabilities(debt) are the claims upon the assets of

the business by its creditors. Liabilities may either

be short-term or long-term obligations.

Capitalis the ownershipof the assets of thebusiness by the proprietor.

The accounting equation is:

ASSETS = LIABILITIES + CAPITAL


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Next Class

FINANCIAL STATEMENTS

What are financial statements?

The Income Statement

The Statement of Capital

The Balance Sheet

Bookkeeping & Accounting Chapter 1

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