AccountingAccounting

How much money did a business How much money did a business make in a year? make in a year?

How much can a business afford to How much can a business afford to

spend on a new addition?spend on a new addition?

How much will any or all of this cost? How much will any or all of this cost?

Important TermsImportant Terms

Accounting - Accounting - the process of recording, the process of recording, analyzing and interpreting the economic analyzing and interpreting the economic activities of a businessactivities of a business

Transaction – Transaction – when something that has when something that has value is exchanged for something else that value is exchanged for something else that has value has value (e.g. an employee gets paid $80 for eight hours of work)(e.g. an employee gets paid $80 for eight hours of work)

Bookkeeping – Bookkeeping – is the recording of all is the recording of all business transactionsbusiness transactions

Business TermsBusiness Terms

AssetsAssets – something that has value and is – something that has value and is owned by a person (can be purchased or owned by a person (can be purchased or given)given)

LiabilitiesLiabilities – are debts or amounts that are – are debts or amounts that are owed to others owed to others

Personal Equity or Net WorthPersonal Equity or Net Worth – is what – is what you have left if you paid off all your debtsyou have left if you paid off all your debts

assets – liabilities = net worthassets – liabilities = net worth

Owners Equity – the net worth for a Owners Equity – the net worth for a businessbusiness

assets – liabilities = owners assets – liabilities = owners equityequity

e.g. your business has $100,000 of assets e.g. your business has $100,000 of assets and has $34,000 worth of liabilities. and has $34,000 worth of liabilities. What is the business’ owners equity?What is the business’ owners equity?

What is a balance sheet?What is a balance sheet? A financial statements used by accountants to A financial statements used by accountants to

show the financial position of that business on a show the financial position of that business on a particular dateparticular date

If the balance sheet is correct the left and right If the balance sheet is correct the left and right

columns should add upcolumns should add up

Balance Sheet EquationBalance Sheet Equation Can be expressed in two waysCan be expressed in two ways

1) Assets – Liabilities = Owners 1) Assets – Liabilities = Owners EquityEquity

2) Assets = Liabilities + Owners 2) Assets = Liabilities + Owners EquityEquity

If you buy a $35,000 car for your If you buy a $35,000 car for your business can you sell it in two years business can you sell it in two years for $35,000? Why or why not? for $35,000? Why or why not?

DepreciationDepreciation – assets that lose – assets that lose value over timevalue over time

Cost principleCost principle – assets are always – assets are always recorded at the actual amount they recorded at the actual amount they were purchased for. were purchased for.

What have learned pupils?What have learned pupils? At your desks, individually try and figure out what At your desks, individually try and figure out what

Mark’s total assets, liabilities and what his Mark’s total assets, liabilities and what his business’ owner equity is.business’ owner equity is.

List of assets and liabilitiesList of assets and liabilities Cash of $6,500Cash of $6,500 Accounts receivable $8,100Accounts receivable $8,100 Accounts payable (debts) $7,350Accounts payable (debts) $7,350 Supplies needed for invoicing $500Supplies needed for invoicing $500 Parts inventory $4,000Parts inventory $4,000 Bank loan $11,050Bank loan $11,050 Equipment $25,000Equipment $25,000 Mortgage on building $110,000Mortgage on building $110,000 Building and land $175,000Building and land $175,000

Answer is?Answer is?

Assets – Liabilities = Owners EquityAssets – Liabilities = Owners Equity

$219,600 - $128,400 = $91,200$219,600 - $128,400 = $91,200

This is to say that if Mark were to sell This is to say that if Mark were to sell all his assets and pay of his liabilities all his assets and pay of his liabilities he would be left with $91,200he would be left with $91,200

How to Prepare a Balance SheetHow to Prepare a Balance Sheet

Benny’s Butchery

Balance Sheet

Dec 30th, 2006

Assets Liabilities

Owner’s Equity

Cash $5 000

Accts recble

T. Smith 250

Inventory 2 000

Equipment 9 990

Building 98 000

Acct’s Payable

B. Dewey $350

bank loan 8 000

Total liabilities 8 350

Total L + OE $115 240

B.Benny, capital 106 890

Total Assets $115 240

Step 1 : create title

Step 3: List assets

Step 4: List liabilities

Step 5: figure out O. Equity using accounting equation OE=A-L

Step 6: make sure Assets=Liabilities +O Equity

Step 2: Set up sheet titles

Line usage in accountingLine usage in accounting

A single line is used when adding a A single line is used when adding a subtotalsubtotal

CashCash $5 000 $5 000 Accts receivableAccts receivable T. SmithT. Smith 250 250 InventoryInventory 2 0002 000 Equipment Equipment 9 990 9 990 BuildingBuilding 98 00098 000

SINGLE LINE

Double LinesDouble Lines

Are used to indicate FINAL Are used to indicate FINAL calculationscalculations

Total assets $Total assets $115 240 115 240

Should be 2 lines NOT one!

Income StatementIncome Statement

Income statementIncome statement Is another financial statement that us used to Is another financial statement that us used to

help a business calculate profit or loss on help a business calculate profit or loss on business operationsbusiness operations

Income statement can look at aIncome statement can look at a WeekWeek MonthMonth Quarter Quarter YearYear

Income statements look at two thingsIncome statements look at two things RevenueRevenue – money brought into the company – money brought into the company ExpensesExpenses – money spent to make your – money spent to make your

business moneybusiness money

Ex. sell a cell phone for $150 and it cost Ex. sell a cell phone for $150 and it cost $85 to make sell that phone then your net $85 to make sell that phone then your net income would be $65 income would be $65

When total expenses exceed total revenue When total expenses exceed total revenue the business incurs a net loss the business incurs a net loss

Bennys Butchery

Income Statement

Month ended June 30, 2006

Revenues

Expenses

Sales $20000

Total Revenues 20000

Salaries expense 8500

Advertising expense 300

Delivery expense 650

utilities expense 750

Total Expenses 10200

Total Income $9800

Step 1: title

Step 2: put in sheet titles

Step 3: do subtotals in the inner column

Totals and line check!

What are some expenses you will What are some expenses you will have with your business?have with your business?