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Spring 2010 Fundamentals of Business Information Systems

INTRODUCTION TO

ACCOUNTING

Accounting Defined

Process that aids in business decision making by

business transactions and interpreting their effects

on the business.

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The accounting of a lemonade stand

Keeping records

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Keeping records

A Balanced Scorecard

What We Have Who Owns It

Cash

Total Total

Cash

Total Total

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Accounting Equation

Time to buy supplies

World Class Lemonade

Lemons 25

Sugar 2.5 pounds

Water 1 gallon

Yield 30 cups

Price List

Lemons 20¢ each

Sugar $2 for 5 pound bag

Assets Liabilities

Cash

Owner's Equity

Total Total

A balance sheet is a snapshot in time and changes frequently.

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Types of Accounting

Financial accounting--preparation and presentation

of financial reports showing business cash flow,

profit/financial performance and financial

position.

Cost accounting--focuses on recording, defining,

and reporting costs associated with specific

operating functions

Cost accounting our current operation

_____________ / _______________ = ____________

$___ / _____ = $_____ per cup "Cost per unit" is typically referred to as "unit cost".

World Class Lemonade

Lemons 25

Sugar 2.5 pounds

Water 1 gallon

Yield 30 cups

Price List

Lemons 20¢ each

Sugar $2 for 5 pound bag

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Setting our price

Many considerations in setting price, but above

all—

You sold 50 cups of lemonade on day one!

Lemonade 50¢ per glass

Income Statement

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End of Day One

Before day one:

After day one:

Assets Liabilities

Cash

Owner's Equity

Total Total

Assets Liabilities

Cash

Owner's Equity

Total Total

Day Two—New Reality

The glasses you used: Mom had to wash. From now on

she's going to charge $2 a day for rental.

Your neighbor has a corner lot and offers to let you set

your stand up there—for $2 a day rental. And you

also have to pay their son $1 a day to help out.

All of the above are ________ (not COGS) that we have

to pay each day.

You go back to the store and buy $12 more inventory.

Sales on day 2 are at the same price but this time

you sell 60 cups.

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End of Day Two—Income Statement

End of Day Two—Balance Sheet

After day one:

After day two:

Assets Liabilities

Cash

Owner's Equity

Total Total

Assets Liabilities

Cash

Owner's Equity

Total Total

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Expanded Income Statement Format

End of day 2 questions

How often did our balance sheet change?

Does the balance sheet show how much we sold?

Does the balance sheet tell us our COGS?

Does the balance sheet tell us our inventory?

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Primary two financial accounting documents

Balance Sheet

Operating Statement, Profit and Loss (P&L Statement), or Income Statement

Sales – COGS = Gross Profit Gross Profit – Expenses = Net Profit

Financial Accounting

Accounting focused on the reporting of the financial

position of the organization.

How would information gathered in the previous

financial document help us in decision making?

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SAP

Details on Assets

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Details on Liabilities and Equity