Do You Know What You Owe? Students' Understanding of Their ...
Chapter 8 BBI1O1. Opening Activity What do you OWN? What do you OWE? What I OWN – What I OWE =...
-
Upload
elvis-almy -
Category
Documents
-
view
219 -
download
2
Transcript of Chapter 8 BBI1O1. Opening Activity What do you OWN? What do you OWE? What I OWN – What I OWE =...
WHAT IS ACCOUNTING?
Chapter 8
BBI1O1
Opening Activity
What do you OWN?
What do you OWE?
What I OWN – What I OWE = Personal Net Worth
Financial Position of an Individual or Company
Cash equipment Furniture Automobile Building
Credit card debt Suppliers Bank loan Mortgage
Accounting
Process of recording, analyzing, and interpreting the economic activities of a business
A record of all the MONEY coming IN and OUT
Examples of Money Flow
Payment received by customers (debtors) Pays for services Pays for merchandise (goods)
Payments made by business to other businesses (creditors)
TRANSACTIONS business activity involving money
Accounting
Accounting records follow strict rules called Generally Accepted Accounting Principles (GAAP)
Using GAAP presents financial information in a standard format in order to compare financial information
The Importance of Accounting
Accountability (employees accountable; receipts, invoices, etc.)
Budgeting (forecasting) Taxation (paying taxes on profit/earnings; capital
gains)
Prepare financial statements Reports summarize business’ economic
health to interested parties (stakeholders) Prepare annual reports
Summary of years activity about company achieved goals, new product launches, sales, expansions, etc.
Two Types of Accounting:
Financial accounting Recording company’s financial position Financial position: financial status of a
business with its owners and creditors Management accounting
Used within a company to make decisions
Ex. How much to charge for products?or Should the business expand?
Accounting Equation Example
A company has the following:
Assets:
• Cash $50,000• Building $100,000• Land $400,000• Supplies $10,000• Inventory $200,000
Liabilities:
• Accounts Payable $75,000• Bank Loan $350,000• Mortgage $150,000
What is the company’s Owner’s Equity?
Accounting Equation Example
Remember the Accounting Equation formula:
A = L + O.E.
Assets: $50,000 + $100,000 + $400,000 + $10,000 + $200,000
=Liabilities: $75,000 + $350,000 + $150,000+Owner’s Equity
Accounting Equation Example
A = L + O.E.
Assets: $760,000 = Liabilities: $575,000 + Owner’s Equity
$760,000 = $575,000 + O.E.
$760,000 - $575,000 = O.E.
$185,000 = O.E.
Accounting Equation Example
Therefore, the company has $185,000 in Owner’s Equity.
This number represents the value of assets that the owner has a claim to.