CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

What is accounting?What is accounting?

The planning, recording, analyzing, and interpreting of financial information.

Why is an accounting background important for a career in business? Business executives must understand the financial

position/well being of a company in order to make informed business decisions

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LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Types of jobs in accountingTypes of jobs in accounting

General office worker Accounting clerks Bookkeepers CPA – certified public accountant

150 college credits 2 years experience and a test

Given twice a year; four parts – 1. business law, 2. audit, 3. tax, non-profit, and cost accounting, 4. financial accounting

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LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Governing bodiesGoverning bodies

AICPA – American Institute of Certified Public Accountants (professional association)

PICPA – Pennsylvania Institute of Certified Public Accountants

GAAP – Generally Accepted Accounting Principles Set the rules, principle, and guidelines accountants follow

FASB – Financial Accounting Standards Board Create the broad accounting concepts and standards for

financial reporting

SEC – Securities and Exchange Commission

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LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Demand for accountantsDemand for accountants

What do you think the demand is? Why? US Patriot Act, 2001

Because of terrorist attacks, 9/11 – greater study of cash flow

Sarbanes -Oxley Act, 2002 More audit requirements because of Enron

Forensic Accounting

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LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Skills/qualities of an accountantSkills/qualities of an accountant

Skills Communication skills Detail oriented Computer skills Math skills Organizational skills Critical thinking skills Good ethics/morals

Qualities Dependable Positive attitude Desire to help Friendly

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LESSON 1-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 1-1LESSON 1-1

The Accounting Equation

Focus question: How do transactions in a business affect the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-1

THE ACCOUNTING EQUATIONTHE ACCOUNTING EQUATION

Assets = Liabilities + Owner’s Equity

Anything Owned

Any Amount Owed

Owners Investment in the Company

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Anything of value that is owned by the entity.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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ASSETS are the RESOURCES OWNED BY A BUSINESS .

Here are some types of assets that might be owned by a business company:

LandLand

EquipmentEquipment

BuildingsBuildings

CashCash

VehiclesVehicles

Store Supplies

Store Supplies

Notes Receivable

Notes Receivable

Accounts ReceivableAccounts

Receivable

ASSETSASSETS

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Land Computer Vehicle Cash

ExamplesExamples

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LiabilitiesLiabilities

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

An amount the business owes.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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• Creditors are the people or companies to whom a business owes something (like money).

• Here are some types of liabilities that a company might owe:

Taxes Payable

Wages Payable

Notes Payable

Accounts Payable

LIABILITIES

LIABILITIES are the CREDITOR’S CLAIMS ON ASSETS.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

The most common liability is a loan. Another common liability is called creditors.

A creditor, also known as a payable, is any business or person (apart from the bank) that you owe.

Suppliers (who you owe for products purchased on credit) would fall under creditors.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

The amount remaining after deducting all liabilities from the assets.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

In other words…In other words…

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Represents the value of the assets that the owner can lay claim to.

The value of all the assets after deducting the value of assets needed to pay liabilities.

It is the value of the assets that the owner really owns.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

THE ACCOUNTING EQUATIONTHE ACCOUNTING EQUATION

MUST ALWAYS BE IN BALANCE!!!

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LESSON 1-1

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-1

TERMS REVIEWTERMS REVIEW

accounting accounting system accounting records financial statements service business proprietorship asset

equities liability owner’s equity accounting equation ethics business ethics

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 1-2LESSON 1-2

How Business Activities Change the Accounting Equation

Focus question: How do transactions affect accounts in the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

RECEIVING CASHRECEIVING CASH

Transaction 1 August 1. Received cash from owner as an investment, $5,000.00.

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1. Read the transaction.2. Identify the accounts affected.3. Classify the accounts affected.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

PAYING CASHPAYING CASH

Transaction 2 August 3. Paid cash for supplies, $275.00.

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• A transaction does not always require than an amount be recorded on both sides of the equation…equation remains in balance.

• One asset is being exchanged for another.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

Transaction 3 August 4. Paid cash for insurance, $1,200.00

• Insurance policy – something of value own by TechKnow

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

TRANSACTIONS ON ACCOUNTTRANSACTIONS ON ACCOUNT

Transaction 4 August 7. Bought supplies on account from Supply Depot, $500.00.

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It is common business practice to buy items and pay for them at a later date (bought on account).

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

TERMS REVIEWTERMS REVIEW

transaction account account title account balance capital

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 1-3LESSON 1-3

How Transactions Change Owner’s Equity in an Accounting Equation

Focus question: How do transactions affect accounts in the accounting equation?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

REVENUE TRANSACTIONSREVENUE TRANSACTIONS

Transaction 6 August 12. Received cash from sales, $295.00.

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• What accounts are affected? Are they increased or decreased?• Revenue – increase in OE resulting from the operation of a business.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

REVENUE TRANSACTIONSREVENUE TRANSACTIONS

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LESSON 1-3

• What accounts are affected? Are they increased or decreased?• Sale on account – sale for which cash will be received at a later date.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

EXPENSE TRANSACTIONSEXPENSE TRANSACTIONS

Transaction 8 August 12. Paid cash for rent, $300.00.

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• What accounts are affected? Are they increased or decreased?• Expense – decrease in OE resulting from the operation of a business.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

• What accounts are affected? Are they increased or decreased?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

OTHER CASH TRANSACTIONSOTHER CASH TRANSACTIONS

Transaction 10 August 18. Received cash on account from Oakdale School, $200.00.

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• OE is not affected when cash is received on account. Why?

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

• What is the difference between an expense and a withdrawal?• Both decrease OE, but a withdrawal is not an expense because it is not a result of

normal business operations.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

Two things that Increase the Owners Equity account:1. Investments 2. Revenue

Two things that Decrease the Owners Equity account:1. Expenses 2. Withdrawals

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-3

TERMS REVIEWTERMS REVIEW

revenue sale on account expense withdrawals

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