introduction to accounting. what is accounting? the process of recording, analyzing and...
TRANSCRIPT
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Introduction to Accounting
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What is Accounting?
The process of recording, analyzing and interpreting the economic activities of a business
Any business activity that involves money is recorded as a transaction Exchanging something of value for
something else that has value Bookkeeping
The recording of all business transactions
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Accounting and You
Individuals must keep accurate accounting records too
You should record your cheques, debit card transactions to ensure you don’t overdraw your bank account
Pre-authorized Payment Giving permission for someone else to
take money from your account on a regular basis, e.g. utilities
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Asset
Something that is owned and has value e.g. bicycle, cell phone, computer
Even if you still owe money on the asset, you still own it
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Liability
Debts or amounts that are owed to others
Common for large purchases such as cars, houses where the entire amount can’t be paid in cash
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Personal Equity or Net Worth
The amount you would have left after all your debts (or liabilities) are paid
Net Worth = Assets - Liabilities
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Accounting and Business
Businesses also have assets and liabilities that can be used to calculate net worth
Owner’s equity The net worth of a business= Assets - Liabilities
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Fundamental Accounting Equation
Owner’s Equity = Assets – Liabilities Can also be rearranged to highlight
assets or liabilities
Assets = Owner’s Equity + Liabilitiesor
Liabilities = Assets – Owner’s Equity
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Company Profit
Helpful to calculate how much money the business made
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Terminology
Net Income The difference between revenue and
expenses
Revenue The money a business receives for the
products or services it sells
Expenses Expenditures that help a business earn
revenue e.g. utilities, telephone
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Profit and Loss
Profit When a business’s revenues are
greater than its expenses
Loss When a business’s expenses are
greater than its revenues
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Using Financial Information
Preparing reports regularly helps business owners and managers keep track of the financial health of the business
Can also communicate information about a business to outsiders that have an interest in the business such as bankers, the government
Usually compare current year with previous year to identify changes
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Using Financial Info continued…
Analyzing helps to determine what needs to be changed and/or improved and what strategies are working
Useful to analyze current and prior year’s: Net income (profit) Revenue and expenses Owner’s equity (net worth of company)
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Who is Interested in Financial Information?
Creditors Banks, credit unions
Owners of the Business Investors (current and potential) Government