Chapter 9: AccountingDay 1: Introduction to

Accounting

Today’s Response JournalWhat items does your family own

that have value to them? What items/money does your family

owe to other people? Make a list of each.

*** Save as December 1in your Response Journal folder***

What is Accounting?_____________ is the process of recording,

analyzing and interpreting the economic activities of a business

Any business activity that involves ___________ is recorded as a _______________A transaction occurs when something that

has value, is exchanged for something else of value

______________ is the recording of all business transactions

Accounting

MoneyTransacti

on

Bookkeeping

Accounting and You

Individuals, as well as businesses, must keep accurate accounting records too

You should record your all cheques you write, debit card transactions and preauthorized payments to ensure you don’t overdraw your bank accountA _________________________ occurs when you

have given permission for someone else to take money from your account on a regular basisE.g. paying your cell phone bill (Rogers, Bell, etc.)

Preauthorized Payment

AssetAn Asset is something that you or a business

________ that has __________E.g. bicycle, cell phone, computer, car, house,

office building, etc.It doesn’t matter whether you purchased the

item or received it as a gift, as soon as you take ownership it is considered one of your assets

Even if you still owe money on the purchased item, it is still considered to be your asset

Own Value

Liability

Liabilities are _________ or amounts of money that are owed to others

Common for large purchases such as cars and houses, where the entire amount typically can’t be paid in full Read the example in paragraph 3 on

page 276

Debts

Personal Equity or Net WorthPersonal Equity or Net Worth is

the amount of _______ you would have left over after all your _____________ (debts) are paid off

To calculate Personal Equity/Net Worth, use the below formula; Net Worth = Assets – Liabilities

Read the example in paragraph 1 on page 277

AssetsLiabilities

Accounting and BusinessJust like individuals, businesses also have assets and

liabilities that can be used to calculate the company’s net worth

The net worth of a business is called ________________, and is calculated the same way net worth is calculated for an individual

Owner’s Equity = Assets – LiabilitiesThe above equation is known as the

_____________________________ and can be rearranged as follows;

Assets = Owner’s Equity + Liabilitiesor

Liabilities = Assets – Owner’s Equity

Owner’s Equity

Fundamental Accounting Equation

Company Profit/Loss

It is helpful to calculate how much money a business has made or lost in a given period of time

Terminology__________ is the money a business receives

for the products or services it sells__________ are the expenditures (things the

business spends money on) that help a business earn revenueE.g. utility bills (water, heat), telephone bill, etc.

____________ is the difference between revenue and expenses

Revenue

Expenses

Net Income

Company Profit/LossA _________ is made when a

business’s revenues are greater than its expenses

A _________ occurs when a business’s expenses are greater than its revenues

Profit

Loss

Using Financial Information

Preparing financial reports regularly helps business owners and managers keep track of the _________________ of their company

Financial reports can also communicate information about a business to _____________ that have an interest in the business such as bankers, the government

Financial reports usually compare the current year to the previous one, in order to identify changes

Financial Health

Outsiders

Using Financial Info continued…

Analyzing financial reports helps to determine what needs to be changed and/or improved and what strategies are working/not working

It is useful to compare the current year’s numbers to the previous year’s. Specifically, you want to compare…Revenue and expensesNet income (profit or loss)Owner’s equity (net worth of company)

Who is Interested in Financial Information?

Creditors An institution, another business or person who lends the company money

E.g. Banks, credit unions, family/friends, etc.

Owners of the businessInvestors (current and potential)

Government

Day 1 - Assigned Work Students please complete the following;

Assets and Liabilities Activity (provided to you)

Review Question #16 on page 302

Chapter 9: AccountingDay 2: Preparing a Balance

Sheet

Preparing a Balance SheetA _________________ is used to record and

summarize information about the assets, liabilities and owner’s equity of a company

A balance sheet shows the financial position of a company on a particular dateE.g. December 1, 2014

A balance sheet is like a __________; it is a snapshot of the financial history of a business at a particular moment in time

Balance Sheet

Photo

Step #1: Fill in the Statement HeadingThe statement headings are always recorded in the same order; Who

Name of the CompanyWhat

Balance SheetWhen

Date

Step #2 – List the AssetsAssets are listed in order of

_______________Liquidity is the ease with which the asset

can be converted into cashE.g. cash requires no conversion and therefore

is the first asset to be listed_______________________, which is money

owed to a business by its customers, is normally paid within 30 days, and therefore is listed second (if the company has any AR)

Liquidity

Accounts Receivable

Step #3 – List the LiabilitiesLiabilities are listed in order by

_______________; the date that they must be repaid byE.g. Accounts Payable will likely be paid off before any loans or mortgages will be, and therefore will be listed above

_____________________ is the amount of money that a business owes to its suppliers

Maturity Date

Accounts Payable

Step #4 – Calculate Owner’s EquityCalculate the business’s Owner’s Equity using the below equation (that was outlined in yesterday’s lesson)

Owner’s Equity = Assets – Liabilities

Step #5 – Put It All TogetherIf you have completed your balance sheet correctly it

will ______________; meaning Total Assets will equal (be the same as) Total Liabilities & Owner’s Equity

Assets = Owner’s Equity + LiabilitiesA balance sheet is considered to be a formal business

documentTo keep consistent formatting certain conventions of

style must be followed; Never use abbreviationsNever have corrections or changes appear on the final version Only place $ in front of the first amount and total amount in each section (Assets, Liabilities & Owner’s Equity)Underline when totaling a column, double underline a final total

Balance

Step #5 – Put It All TogetherStacey’s Bicycle Repair Shop

Balance Sheet December 1, 2014

Assets Cash $7 500 Supplies 700 Equipment 2 300 Building 52 000 Total Assets $62 500 Liabilities Accounts Payable $2 700 Bank Loan 9 500 Mortgage Payable 17 500 Total Liabilities $29 700 Owner’s Equity Stacey Schnarr, Equity $32 800 Total Liabilities and Owner’s Equity $62 500

Day 2 – Assigned Work

Students please complete the following;

Balance Sheet Activity (provided to you)

Chapter 9: AccountingDay 3: Preparing an Income

Statement

Preparing an Income StatementAn __________________ is a financial

statement that show whether a business made a __________ or _______

An income statement is more like a movie, as it shows what happens over a given period of time; called a _________________

A fiscal period is any period of time selected by a business that is used for financial calculations and comparisons; monthly, quarter or yearlyE.g. Month Ended November 30, 2014

Income Statement Profit

Loss

Fiscal Period

Income Statement - Overview

It is helpful to calculate how much money a business has made or lost in a given period of time

Terminology__________ is the money a business receives

for the products or services it sells__________ are the expenditures (things the

business spends money on) that help a business earn revenueE.g. utility bills (water, heat), telephone bill, etc.

____________ is the difference between revenue and expenses

Revenue

Expenses

Net Income

Company Profit/LossA _________ is made when a

business’s revenues are greater than its expenses

A _________ occurs when a business’s expenses are greater than its revenues

Profit

Loss

Step #1 – Statement Heading

The statement headings are always recorded in the same order, and are very similar to the headings in the Balance SheetWho

Name of the CompanyWhat

Income StatementWhen

Date (stated over a period of time)

Step #2 – List the RevenuesList all ____________ of revenue

Many companies have more than oneThen calculate Total Revenue

Step #3 – List the Expenses

List all expenses in _____________ orderThen calculate Total Expenses

Sources

Alphabetical

Step #4 – Calculate Net Income (or Net Loss)

Use the totals, Total Revenue & Total Expenses, as calculated in steps 2 & 3 to calculate the Net Income of the company Net Income (Net Loss) = Total Revenue –

Total Expenses

If Total Revenue is _______________Total Expenses, then the company has made a profitIf Total Expenses are ______________ Total Revenue, then the company has made a loss

Greater Than

Less Than

Step #5 – Put It All TogetherAn income statement is also considered to be a

formal business documentTo keep consistent formatting certain

conventions of style must be followed; Never use abbreviationsNever have corrections or changes appear on the

final version Only place $ in front of the first amount and total

amount in each section (Revenue, Expenses and Net Income/Loss)

Underline when totaling a column, double underline a final total (Net Income/Loss)

Step #5 – Put It All Together

Stacey’s Bicycle Repair Shop Income Statement

Month Ended November 30, 2014 Revenue Repair Revenue $10 500 Total Revenue $10 500 Expenses Advertising $500 Insurance 750 Rent 3 000 Salaries 3 200 Total Expenses $7 450 Net Income $3 050

Day 3 – Assigned Work

Students please complete the following;

Review Questions #5, 6 & 8 on page 300