Ch2 Notes.ppt

7/31/2019 Ch2 Notes.ppt

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System used to keep track of financesRecord of money that comes and goes outFollows strict rulesFinancial Accountingrecording and analyzing

Managerial Accountingdecision making

What is Accounting?

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Assets = Liabilities + Equity

AssetsThings of value you own

LiabilitiesThings that you owe to othersEquityWhat you have left/are worth after you use all

of your assets to pay off your liabilitiesAssets Liabilities = Equity/Net Worth

Fundamental Accounting Equation

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2.1


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List of things of values that you ownLeft side of balance sheetListed in order of liquidity.

Two categoriesCurrent Assets: turn to cash in 1 yearFixed Assets: needed to run the businessTotal is double underlined

Assets

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Money that is owed TO you by customersBilled but not yet receivedUsually give 30 days to paytherefore current assetDetailed records are keptUsually only the total appears

Accounts Receivable

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Lists of things that you owe to othersRight side of balance sheetTwo categoriesCurrent liabilities: pay within a yearLong term liabilities: more than a yearTotalled but not underlinedNeeds to be added to Equity

Liabilities

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Money that you have to pay to suppliers/creditorsUsually have 30 days to paytherefore Current Liability

Detailed records are keptUsually only total appears on the balance sheet

Accounts Payable

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Also called Net Worth or Owners EquityMoney owner invested in companyPlus any profits or Minus any losses

Minus money owner takes out for personal usecalled DrawingsWhatever is left over after all the liabilities aresubtracted from the assets

Assets - Liabilities = EquityShows what the company is worth

Equity

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Text pages 17-18Questions 1-6Exercises 1-6

Workbook pages 4 & 5

Homework

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Formal DocumentsStandard formatRegular basis

At least yearly (fiscal year)Required by law for tax purposesKey information about financial positionBalance Sheet

Income Statement

Financial Statements

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Provides accurate picture of how company is doingUsed byBusiness owners/managersInvestors

LendersGovernment

Using Financial Statements

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Statement of financial positionSnap shot in timeContains fundamental accounting equation

Assets = Liabilities + EquityAlways has three lines at the topWhoWhatWhen

Balance Sheet

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Who

What

When

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Balance Sheet

Both TOTALS should be on the same line.

List all assets on theleft

Single underline

Add up total AssetsDouble underlineTOTAL

List all liabilities on rightSingle underlineAdd up total LiabilitiesCalculate EquityAssets-Liabilities

Single underlineAdd up Liabilities andEquityDouble UnderlineTOTAL

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Each column starts with a dollar signA line restarts the column

Dollar Signs?

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Single lineSingle line

Double line Double line

$

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Using Column Paper

2.2


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Text Page 24-25 Exercise #1 (wb6)Have me check when doneFOLLOW TEXTBOOK EXAMPLES

HomeworkReview Questions 1-17Text page 25 Exercise #2 (wb7)

Assignment

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Liquidate

Claims against Assets

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2.3


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Page 27-28 (wb8-9)Exercises 1 & 2

Homework

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Generally Accepted Accounting Principles1. Business Entity

Keep business and personal separate

2. Going Concern (Continuing Concern)

Assume business continues as usual3. Conservatism

Fair and reasonable evaluations and estimates

GAAPs

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Text pg 30-31 (wb10)Review Questions 1-6

Exercise #1Separate business from personalCases for further thought 1-6

Homework

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Makes accounting quicker and easierEliminates arithmetic errorsDedicated accounting programsCant put the accounting equation out of balance

Provide immediate financial statementsSpecialize to meet your business needs

Computers and Accounting

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Does not eliminate all errorsCould put information in wrong accountNeed to understand the basics of accountingFundamental accounting equation

A/R owes you moneyA/P you owe money to

Computers and Accounting

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With a partner use a spreadsheet to complete page25 Exercise #3

Homework Chapter 2 ReviewPage 38-39 Exercises 1-5

Assignment

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