Unit 11 Accounting Concepts and Procedures By Bill Venables ACCT100 Bill Venables Types of business organizations Sole proprietorship one owner Partnership more than one owner Corporation many owners ID: 237723
Download Presentation The PPT/PDF document "Chapter 1" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Chapter 1
Unit 1-1 Accounting Concepts and Procedures
By Bill VenablesSlide2
ACCT_100 Bill
Venables
Types of business organizations
Sole proprietorship (one owner)
Partnership (more than one owner)
Corporation (many owners)
See table 1-1 at the top of page 3Slide3
ACCT_100 Bill Venables
Sole proprietorship
One owner
Runs business
Plus
You make the decisions
When business does well you receive all of the benefits
Minus
You do everything
If business can’t pay its expenses, you must pay for them
Ends upon deathSlide4
ACCT_100 Bill Venables
Partnership
>= 2 owners
Plus
Decision making is shared
Risk is shared
Minus
Partners are responsible for debts of partnership
Partners might not get along
Ends upon death or leavingSlide5
ACCT_100 Bill Venables
Corporation
Owned by shareholders
Plus
Limited liability of shareholders
Minus
Other shareholders can take the company in a way you don’t want it to go
Never ends – just keeps on goingSlide6
ACCT_100 Bill Venables
Classifying businesses by activity
Service
Merchandising
Manufacturing
Question:
How would you classify an OFFICE ADMIN firm as far as activity?Slide7
ACCT_100 Bill Venables
What do accountants do?
Analyze-what happened?
Record-the transactions
Classify-group stuff together
Summarize-total things by date (usually)
Report-create reports based on the previous information
Interpret-make money/ lost money?Slide8
ACCT_100 Bill Venables
Definitions
Revenue = money earned for services
rendered and/or goods sold
Expense = costs incurred by your firm to generate revenueSlide9
ACCT_100 Bill Venables
GAAP
Generally Accepted Accounting Principles
Just because they are generally accepted doesn’t mean that they are correct (maybe the principle should be changed!)
Guidelines when running a businessSlide10
ACCT_100 Bill Venables
GAAP - Business Entity Principle
Keep the company’s affairs separate from your personal affairs
I use 2 bank accounts for deposits and withdrawals
The
company has its own
cheque
book
I have my own personal
cheque
bookSlide11
ACCT_100 Bill Venables
GAAP – Historical Cost Principle
Record transactions at their cost
Value of an asset never
changes on your books
Eg
, Company bought land for $40,000
It is now worth
$60,000
When the land was purchased it was recorded at $40,000
It never
changes on your booksSlide12
ACCT_100 Bill Venables
GAAP – Realization/Recognition Principle
Record revenue and expenses when the transaction takes place
Eg
. The company completes a project today (January
6
th
) and invoices you but payment will not have to be made until February 15
th
Record the sale
using the date = January 6
th
not
February 15
th
)Slide13
ACCT_100 Bill Venables
GAAP – Going-Concern Assumption
Businesses (companies) will continue even if the shareholders pass away (others will take their place)
The company is in business to make money (going concern)Slide14
ACCT_100 Bill Venables
GAAP – Matching Principle
Match revenue and expenses
Eg
. The company sells me a car for $
40,000.
Revenue
= $40,000
Expenses
The
company paid $30,000 for the car
The company paid the salesman $2,000 as a commission to sell the
car
Total expenses = $32,000
Net Income = revenue-expenses
= $8,000.00Slide15
ACCT_100 Bill Venables
GAAP – Conservatism
Be conservative when recording transactions
Underestimate revenue
Overestimate
expenses
This will minimize the taxes that you have to pay because you pay tax on net income = revenue-expensesSlide16
ACCT_100 Bill Venables
GAAP – Fiscal Year End
Every company has a year end = a date when one period ends and another starts
Eg
. For individuals, our year starts January 1 and goes to December 31
st
.
Our year end = December 31
st
Companies can have a year end that is not December 31
st
Eg
. July 1, 2004 - June 30,
2005
We will try to keep it simple and use the calendar year.Slide17
ACCT_100 Bill Venables
GAAP – Materiality
Painstaking detail when creating reports is not necessary
Transactions are recorded in dollars and cents
Reports are usually
rounded to dollars
Eg
. Your company’s net income last year = $567,000.02 Do we really need to care about the $.02 No!Slide18
ACCT_100 Bill Venables
GAAP – Consistency
Make assumptions
Stick with your assumptions so that from one year to the next, they are consistentSlide19
ACCT_100 Bill Venables
The accounting equation – p
7
Assets =
Equities
Assets are what you own (even if they are not paid off)
Equities are financial
claims
to the assets
Equation must always be in balanceSlide20
ACCT_100 Bill Venables
Equities
– p
7
Can be further broken
down as Liabilities + Owner’s Equity
Assets
=
equities
(liabilities + owners equity)
Owners equity (capital) = rights (claims) by the owner
Liabilities = rights of
creditors (companies or individuals who lend the business money/sell the business things on credit, etc)
They get paid before the ownersSlide21
ACCT_100 Bill Venables
Catherine Hall Law Practice
P
8
Catherine opens her own practice
She must keep her personal affairs separate from the business
She will have her own personal
Bank account
cheque
book
She will have a business
Bank account
cheque
bookSlide22
ACCT_100 Bill Venables
Your turn again – p
8
Assume you are Catherine
You supply the following items to the business when you start it up:
$7,000
cash
$800
in office equipment (printer, computer, monitor, speakers….)
What is your equity in the business?Slide23
ACCT_100 Bill Venables
Your turn-p
8
Use template Unit 1-1.xls workbook
Unit 1-1 worksheet
Transaction A
Catherine invests $
7,000
cash and $800 worth of office equipment into the business
Use these accounts: cash, office equipment, liabilities, owners equity
Show the equation (it must always be in balance)Slide24
ACCT_100 Bill Venables
Shift in Assets
It is the weekend so it is time to
Parrrrttttaaaay
You have $100 cash so the total value of your assets is $100
You buy a case of beer for $20
What is the total value of your assets now?Slide25
ACCT_100 Bill Venables
Your turn again-p
9
Transaction B
Buy $900 worth of office equipment for cash
This is a shift in assets
using up one asset to buy another
Cash goes down and office equipment goes
up but the total assets does not change.Slide26
ACCT_100 Bill Venables
Definitions – Accounts
Payable (a liability)
Sometimes
the business will purchase
things
with cash
(cash or
cheque
)
Sometimes
the business will purchase now but
promise to pay for it later on (
Mastercard
, Visa, American Express…). You buy using credit.
Accounts payable – an account that tracks what you purchase on credit
Eg
. You go to Future Shop and purchase some music CDs using your
Mastercard
When you buy with
Mastercard
, you owe
Mastercard
the money, not
Futureshop
This is a liability, a promise to pay a creditorSlide27
ACCT_100 Bill Venables
Definition – Accounts Receivable
When the business does
work for
someone
(supplies a service or
goods to a customer)
either
the customer:
pays
cash (cash or
cheque
) right away
promises
to pay you later on
Account receivable – an account that tracks what your customers owe you
Eg
.
I (customer) hire you to
do some work for me and I promise to pay you later, then this is an Accounts Receivable from your point of view (you will receive payment in the
future or a customer (me) is promising to pay you later)Slide28
ACCT_100 Bill Venables
Your turn again - p
9
Transaction C
Buy $400 of office equipment on account
(Accounts Payable=you
will pay for it later)Slide29
ACCT_100 Bill Venables
End of Unit 1-1 – p
10
Self review quiz 1-1