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Introduction To Accounting: By: Corene Procope-Francis

This document provides an introduction to accounting. It outlines key accounting concepts such as the accounting equation, double-entry bookkeeping system, financial statements including the balance sheet and income statement, and types of business ownership like sole proprietorships, partnerships, and corporations. The document also discusses accounting as an aid to decision making for both internal and external users of financial statements.

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© © All Rights Reserved
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93 views

Introduction To Accounting: By: Corene Procope-Francis

This document provides an introduction to accounting. It outlines key accounting concepts such as the accounting equation, double-entry bookkeeping system, financial statements including the balance sheet and income statement, and types of business ownership like sole proprietorships, partnerships, and corporations. The document also discusses accounting as an aid to decision making for both internal and external users of financial statements.

Uploaded by

Corene Roxy Pro
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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1 23

Introduction to
By: Corene ProcopeAccounting
Francis

Session Outline
Learning Objectives
Introduction
What is Accounting
Users of Accounting Information
Types of Business
Intro to Double entry book-keeping
Review

Learning Objectives
After this session, you should be
able to
Understand the nature and scope of
Accounting
Compare features of proprietorships,
partnerships, and corporations.
Identify Financial Statements
Understand Double Entry Book-keeping

INTRODUCTION

Accounting Decision Making by the Numbers


HR - budget
for training,
recruitment,
employee
vacation
costs, etc.

Entrepreneu
rs account
for their
income and
expenses

Marketing
analyze
marketing
campaigns
against gross
sales

Personal
management
of cash
inflows e.g.
salary and
outflows e.g.
rent,
groceries,
etc.

What is Accounting
A process of identifying, recording, summarizing, and
reporting economic information to decision makers in the
form of financial statements
Accounting helps in decision making by showing where and
when money has been spent, by evaluating performance,
and by showing the implications of choosing one plan
instead of another.
There are two types of Accounting Management and
Financial

Management vs Financial
Accounting

The Flow of Accounting


Information
1. Business
transactions occur
2. Businesses prepare reports
to show the results of their
operations
3. Users make decisions from
these reports.
7

The Accounting Equation


Financial accounting is based upon the
accounting equation.
Assets = Liabilities + Owners' Equity
This is a mathematical equation which must
balance.
If assets total $300 and liabilities total $200,
then owners' equity must be $100.

1. Business
transactions occur

The Accounting Equation


Assets - resources of the firm that are expected to
increase or cause future cash flows (everything the
firm owns)
E.g. Land, Building, Cash, Inventory, etc.

Liabilities - obligations of the firm to outsiders or


claims against its assets by outsiders (debts of the
firm)
E.g. Accounts payable, loan payable, etc.

Owners Equity - the residual interest in, or


remaining claims against, the firms assets after
1. Business
deducting liabilities (rights of the owners)

transactions occur

Financial Statements
Businesses record their performance in standard
formats called financial statements. The most
common of these are:
Balance Sheet (also known as a Statement of
Financial Position, or a Statement of Financial
Condition) Assets, Liabilities & Owners Equity
Income Statement (Statement of Profit and
Loss, Statement of Earnings, Statement of
Operations). Revenue & Expenses
Cash Flow Statement. 2. Businesses prepare reports
to show the results of their

Users of Accounting Information


Individuals

Identification
of Users

Government
regulatory
agencies

Businesses

Taxing
authorities

Investors and
creditors

Nonprofit
organizations

11

Users of
Accounting
Information
EXTERNAL USERS

INTERNAL USERS

12

Investors
Creditors
Government
Customers
Competitors
The Public

Owners
Managers
Employees

Accounting as an Aid to
Decision Making
Investors want to know if a company is a good
investment.
Government want to know how legislation will affect
tax revenue
Management want to know if a new product will be
profitable.
Creditors want to know if they should extend credit,
how much to extend, and for how long.
Employees want to know if the business is profitable,

Types of Ownership
Three basic forms of
ownership:
Sole proprietorships
Partnerships
Corporations

Sole Proprietorship or Sole Trader


A separate organization
with a single owner
Tend to be small retail
establishments and
individual professional or
service business - for
example, a single dentist,
attorney, hairdresser or
mechanic
The sole proprietorship is
an individual entity that is
separate and distinct from
the owner.

ASSETS

LIABILITIES
Accounts

Cash personal funds of $1,000 into Ls Hair-salon. Buys a


Lisas invested
Payable
hairdryer
for $400 from Courts on Hire Purchase.
1,000

Equipment
400

400

OWNERS EQUITY
Capital
1,000

Partnership
An organization that joins two or more
individuals who act as co-owners
Dentists, doctors, attorneys, and accountants
tend to conduct their activities as partnerships.
Some can be large international firms e.g. PWC
and Ernst & Young
The partnership is an individual entity that is
separate and distinct from each of the partners.
Partners are usually active managers in day-today operations of the business.

Corporation
An artificial entity created under state laws
Corporations have limited liability - corporate
creditors have claims against corporate
assets only.
Individual investors are at risk only up to the
amount they have invested in the corporation.
Creditors cannot hold investors liable for the
corporations debts.

Shareholders usually do not participate in the


day-to-day operations of the business.

The Double-Entry system


Double-entry accounting is based on a simple concept:
each party in a business transaction will receive something
and give something in return. In bookkeeping terms, what is
received is a debit and what is given is a credit. The T
account is a representation of a scale or balance.

Each transaction is recorded with at least:


One debit
18

One credit

Total debits must equal total credits.

The Double-Entry system


The system records the two-sided
effect of transactions
Scale or Balance

T account
Left Side
Receive
DEBIT

Receive
DEBIT

Give
CREDIT

Right Side
Give
CREDIT

The Double-Entry system


Credit and Debit are the two fundamental
aspects of every financial transaction in the
double-entry bookkeeping system
ASSET
EXPENS
E
LIABILIT
Y
INCOME
EQUITY

CREDIT
CREDIT
DEBIT
DEBIT
DEBIT

DECREA
SE

DEBIT
DEBIT
CREDIT
CREDIT
CREDIT

INCREA
SE

ASSET
EXPENS
E
LIABILIT
Y
INCOME
EQUITY

The Double-Entry system


Note that the accounting equation equality is
maintained after recording
each transaction.
Transaction

Two-sided effect

Bought furniture for cash Decrease in one asset (Cash/Bank)


Increase in another asset (Furniture)
Took a loan in cash
Increase in an asset (Cash/Bank)
Increase in a liability (Loan Payable)

Practical Example T-accounts


Y Started a business with $20,000.
Bought Furniture for $4,000 cash.
Bought a van for $12,000 via cheque.
Purchased goods for resale from Z for
$6,000 on credit.
Took a Loan of $10,000 in cash.
Repaid $3,000 to Z via cheque.
Withdrew $3,000 from the business for
personal use.

T account
Left Side
Receive
DEBIT

Right Side
Give
CREDIT

REVIEW
Business
Transactio
ns

Double Entry
Debit & Credit
The Accounting
Equation

Financial
Statemen
ts

Balance Sheet
Income Statement
Cash Flow
Statement

Users of
Financial
Statemen
ts

Management
Creditors
Shareholder

Types of
Business
23

Sole Trader
Partnership
Corporations

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