Review Basic Accounting

Fundamentals• Assets are anything the business owns that has a dollar value

(debit balance on the “T-accounts”)• Liabilities are debts the business owes to individuals,

businesses, or other organizations business (credit balance on the “T-accounts”)

• Owner’s Equity is the difference between the total assets and the total liabilities of a business (credit balance on the “T-accounts”)

• The fundament accounting equations is:• ASSETS= LIABILITIES + OWNER’S EQUTIY(O.E)• So everything the business owns should be /must be /is equal to

the debts of the business plus the difference of total assets and total liabilities asset= 100 liabilities=40 so.. O.E = 100-40=60

• And assets = 40+60=100

DEBITS AND CREDITSAssets (Debit)

Liabilities (Credit) O.E (Credit)

Dr

Dr Dr

Cr

Cr Cr

Balance sheet A statement that shows that financial position of a business on certain date

The balance sheet is set up in the form of the fundamental accounting equation

Both sides balance

Income statement A financial statement that summarizes the items of revenue and expense and

shows the net income or net loss of a business for a given fiscal period

Shows the profitability of a business

can be used as a comparison between other income statements to show where the business can improve

Accounts Payable and Accounts Receivable

Accounts Payable: The money that a business owes to its creditors the money is a liability of the business

Accounts Receivable: the money that is owed to the business by its customers the money is an asset of the business

GAAPS and IFRS Business Entity Concept Cost Principle Principle of Conservatism Continuing Concern Concept Objective Principle Revenue Recognition Principle Time Period Concept The Matching Principle Revaluating Cost Principle

Types of Taxes

A compulsory contribution to the government used to pay for essential services

Taxes

Property Tax

Sales Tax Income tax

Tariffs

Why it is important to budget and how?An estimate of income and expenditure Helps save money Helps plan for future Control impulsive spending Helps make money

Keep track of incomeMake list of essential expenses Save or invest remaining money

Types of Insurances A practice or arrangement by which a company or government agency provides a

guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium

Health insurance Car insurance Life insurance Home insurance

Pay small monthly fees

Types of Benefits

BenefitsFringe Benefits

Health, Eye, and Dental Insurance

Discounts

Employee Stock Purchase

Plan

RRSP

Fringe Benefits: an extra supplementary benefit additional to an employee’s salary Health, Eye and Dental Care: Partial or full coverage of medical expenses not covered by OHIPDiscounts: Employee discounts (either % or set amount)Employee stock purchase plan: employees given an option to obtain company stocks for freeRRSP: companies contribute to a employee’s personal RRSP

What are payroll deductions?Money taken out of you pay-cheque for various reasons For What:

CPP Employment insurance Income Tax Voluntary Deductions

CPP: Canadian Pension Plan; mandatory contribution to your retirement fundEmployment Insurance: mandatory deduction for the protection of employee in the case of an accident Income Tax: a mandatory deduction on what you earn Voluntary Deductions: Donations and Personal RRSP

Credit vs debit cardsCredit Bureau: a company which collects information relating to credit ratings of individuals and makes it available to credit card companies, financial institutions

Credit card: a card issued by a financial institution allowing the holder to make purchases which you do not have funds for at the time of purchase

• Allows a credit rating to be built

Debit Card: a card issued by a financial institution allowing the holder to transfer funds to another bank account while making a purchase (with their own money)

• Include examples (master, visa, american express)

Loans•Loan: a sum of money borrowed from a financial institution for a certain period of time, expected to be paid back with interest upon the principal amount.•Mortgage: a long term loan taken to pay for real estate property. • Average is 25 years• Installments are paid monthly• Bank performs background checks before confirming the mortgage•Financial Documents• Before a loan is issued, background checks on clients is performs• Used to test reliability• “Credit rating” is considered•Interest• A proportionate fee paid on top of the borrowed sum upon returning for the service

offered• Controlled by bank of Canada (keeping in mind the economic state of the nation)

Savings and Chequing Accounts• Saving Account: a storage for money where the amount earns

interest (accumulated over time)• Earns very little interest• Not used to withdraw funds on a daily basis•Chequing Account: An account used to access funds on a regular basis• Used to sign checks• Does not earn interest

Different types of bank agreement

•Overdraft protection: an agreement made with the bank (financial institution) that allows you to spend more than the value in the account at the time.•Certified Check: a check for which the bank takes the funds out of the payer’s account in advance and puts them aside to honour the check when it is presented by the payee•NSF (non sufficient funds check): a check that cannot be honoured because there is not enough money in the issuer’s bank account.

Banking: The business conducted or services offered by a bank•Process of managing personal finances