The Basics of Accounting ACCT 201

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1 The Basics of Accounting ACCT 201

2 Content Accounting definition Accounting equation Accounting elements Asset, Liabilities, & Equity Transactions Accounts Receivable vs Accounts Payable Retained Earnings Questions

3 Accounting is an information system that reports on economic activities and financial conditions. Financial Accounting Managerial Accounting

4 Accounting Equation Assets = Liabilities + Equity

5 Accounting Elements

6 Assets Assets are the resources that a business uses to produce earnings.a company will receive assets from a previous transaction or event. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles. Assets + -

7 Assets example Company ABC buys land for $50,000 in cash. Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Retained Earnings

8 Assets Examples Company ABC buys land for $50,000 in cash. Assets = Liabilities + Equity Cash + Land = Accounts Payable Retained Earnings ($50,000) $50, = 0 0

9 Assets: Examples Company ABC buys land for $50,000 in cash. Debit: Land $50,000 Credit: Cash $50,000 Assets Cash Land ($50,000) $50,000

10 Liabilities Liabilities are obligations of a company or organization. To fulfill the obligation a company can give up some of its assets, provide services to the creditor or replace the obligation for another. Liabilities often have the word "payable" in the account title. Liabilities - +

11 Liabilities example Company ABC purchased equipment on account for $2,000. Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Retained Earnings

12 Liabilities example Cash + Assets = Liabilities + Equity Supplies = Accounts Payable - $2,000 $2, $2,000 = $2,000 0 Retained Earnings

13 Liabilities Company ABC purchased equipment on account for $2,000. Debit: Supplies $2,000 Credit: Accounts Payable $2,000 Assets Supplies Liabilities Accounts Payable $2,000 $2,000

14 Equity Equity is an investor's claim on a company. Includes stockholders' equity, owner's equity, or a nonprofit organization's net assets. Equity - +

15 Equity example Company ABC s issued common stock worth $80,000 Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Common Stock

16 Equity example Company ABC s issued common stock worth $80,000 Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Common Stock $80,000 = $80,000

17 Equity example Company ABC s issued common stock worth $80,000 Debit: Cash $80,000 Credit: Common Stock $80,000 Asset Cash Equity Common Stock $80,000 $80,000

18 Asset, Liabilities, & Equity Transactions

19 Example 1 Company ABC received $65,000 cash by leasing furniture to customers. Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Retained Earnings

20 Example 1 Company ABC received $65,000 cash by leasing furniture to customers. Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Retained Earnings $65, $65,000 Which account under retained earnings is being used in this example?

21 Example 2 Company ABC borrowed $200,000 cash. Assets = Liabilities + Equity Cash + Supplies = Notes Payable Retained Earnings

22 Example 2 Company ABC borrowed $200,000 cash. Assets = Liabilities + Equity Cash + Supplies = Notes Payable $200,000 $200,00 Retained Earnings

23 Example 3 Company ABC paid $2,000 of cash dividends to the owners Assets = Liabilities + Equity Cash + Supplies = Notes Payable Retained Earnings

24 Example 3 Company ABC paid $2,000 of cash dividends to the owners Assets = Liabilities + Equity Cash + Supplies = Notes Payable Retained Earnings ($2,000) ($2,000) Which account under retained earnings is being used in this example?

25 Accounts Payable vs. Accounts Receivable

26 Accounts Receivable Is an asset that results from sellings goods and services. Its money owed to the company from clients that haven't paid the company yet. The company should expect this money in the near future.

27 Accounts Payable Is the amount of money the company owes for services or goods they purchased from another company. This money is credited till the company can pay the other company for the goods and services they purchased.

28 Examples of Accounts Payable & Accounts Receivable

29 Company ABC incurred $3,000 of other operating expenses on account.

30 Accounts Payable

31 Company ABC incurred $3,000 of other operating expenses on account. Assets = Liabilities + Equity Cash + Supplies = Accounts Payable Retained Earnings $3,000 ($3,000)

32 E1-5 Company ABC provides gardening services worth $2,000 for their client. Company ABC completed the services and the client performed for the services on account.

33 Accounts Receivable

34 Company ABC provides gardening services worth $2,000 for their client. Company ABC completed the services and the client performed for the services on account. Assets = Liabilities + Equity Cash + Accounts Receivable = Accounts Payable Retained Earnings $2,000 $2,000

35 Company ABC collected $1,500 cash from client in partial payment of their services. (services have been completed)

36 Accounts Receivable

37 Company ABC collected $1,500 cash from client in partial payment of their services. (services have been completed) Assets = Liabilities + Equity Cash + Accounts Receivable = $1,500 ($1,500) Accounts Payable Retained Earnings

38 Retained Earnings Expenses Revenues Matched with revenues Debit Balance recognized when the service or good is delivered Credit balance Ending Balance Retained Earnings = Beginning balance retained earnings + Net Income - Dividends Net Income = Revenues - Expenses

39 STOCKHOLDERS EQUITY RETAINED EARNINGS + Common stock Revenues Expenses Dividends

40 Questions?

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