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Accounting
Accounting is essential for managing financial data and helping make informed decisions. It involves several key activities, including preparing reports, maintaining records, and ensuring accuracy.
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Changing Spreadsheet Amounts
Functions
Formulas
Values
Labels
Two final totals are on each side of the statement,double underlined.
Financial details are fully disclosed (land, building,mortgage, all separated)
Liabilities listed in order they are DUE
Assets are listed in order of liquidity
A 3-lined heading – who, what, when
Set up in the form of the accounting equation
A = L + OE (Assets = Liabilities + Owner’s Equity)
A − L = OE (Assets − Liabilities = Owner’s Equity)
Step 3 Calculate the difference between total assets and total liabilities.
Step 2 List and total your debts. These are called liabilities.
Step 1 List and total the things that you own that have dollar values. These are called assets.
The accounting cycle
3. Miscellaneous Activities
2. Periodic Accounting Activities
1.Routine Daily Activities
Corporations
Municipal corporations
Crown corporations
Public corporations
Private corporations
Partnership
Example
Formerly A&W, Baskin-Robbins, Black & Decker
Law and Accounting Firms
Partner Disagreements
Unlimited liability in general partnerships
Shared responsibilities
More capital and financing
Strengths of more than one person
General
Each partner could be held responsible for the other partners business errors
All partners have unlimited liability in the firm’s debts
Unlimited liability
Limited
Partners are only responsible for the funds they both invested in the initial business
Limited Liability
Sole proprietor
EXAMPLE
butcher shops,
restaurants
Small corner stores,
Disadvantages
Unlimited Liability
Invests own funds to start the business
Advantages
Owner keeps profits
Less expensive than other forms of business ownership
Easy to start
Be your own boss
Not-For-Profit eg.operation smile, unicef, make a wish
Merchandising eg.grocery store, convenience store, H&M
Manufacturing eg.Toyota, Apple, Honda
Service eg.hotels, hair salon, schools, hospitals
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ment Accountant (CMA).
Certified General Accountant (CGA)
Accountant (CA)
establishing controls to promote accuracy and honesty among employees
preparing information reports and summaries for the following purposes
B. to serve the needs of groups outside the business, such as bankers and investors
A.to help management make decisions
rearranging, summarizing, and classifying financial information
preparing and collecting permanent records.
gathering financial information
If Trial Balance does not balance:
4.Check that there is a balanced accounting entry in the accounts for each transaction.
3.Re-calculate the account balances
2.Check the figures from the ledger against those in the trial balance. Make sure none are missing, written incorrectly or on the wrong side.
1.Re-Add the columns.
It is an accountant's job to find and correct these errors
When a trial balance is out of balance, at least one error has been made in the accounting process
The term “on account” or “on credit” is used widely in businessand can be used in the following 4 ways:
A receipt on account is money received from a debtor to reduce the amount they owe to us
A payment on account is money paid to a creditor to reduce the amount we owe them
A sale on account is a sale for which the money is not received at the time you provide the product/service
A purchase on account is one that is not paid for at the time you receive the product/service
Other transactions can bring exceptional balances as well:
You over-draw (overdraft) your cash (bank account)
You return goods to a supplier, where you have no previous account balance
A customer who paid cash, returns an unsatisfactory purchase
You overpay an A/P
Write the result beneath the larger of the two pin totals from Step 1 and circle this final amount
Subtract the smaller total from the larger total
Step 1
Called pin totals or pencil footings.
Add the two sides of the account separately & write down these two subtotals (using small print)beneath the last item on each side.
The dollar value and whether that is a debit or a credit
The name of the account (written at the top)
Example: Buy $100 supplies with cash on Feb. 1
The total value of the debits equals total value of the credits
At least two accounts are affected in each transaction
Using the Spreadsheet Model for Transactions
Adding Formulas
Creating a Trial Balance(Steps in ‘taking off a trial balance’)
5.Write a heading at the top including the name of the business, the title “Trial Balance” and the date.
4.See if the two sides balance.
If not = “out of balance”
If yes = “in balance”
3.Add up the two columns
2.Place all the debit balances in the debit column and the credit balances in the credit column
1.List the accounts and their balances, leave room for a 3-line heading
Methods of Taking Off a Trial Balance
Step 5 See if the two column totals are the same. If they are, write the totals and finish by drawing a rule above and a double rule below them to indicate a final balance amount.
If the column totals are not the same, you must find your errors.
Step 4 Add up the two columns.
Step 3 Place the debit balances in a debit column and the credit balances in a credit column.
Step 2 List all the accounts and their balances. Dollar signs are unnecessary because the trial balance is an internal record and not normally shown to outsiders.
Step 1 Write a heading at the top. It must show the name of the individual or business, the title “Trial Balance,” and the date.
Buying and Selling on Credit
The Bank Account
Interpreting the Balance of an Account
Calculating the Balance of an Account
working with a calculator
Step 3 Enter the amounts from the opposite side of the T-account. Press the minus symbol after all amounts except the last one.
Step 2 On your calculator, enter the first amount on the normal side of the T-account, followed by the plus symbol. Repeat for the remaining amounts on the normal side.
With one exception: after the last amount is entered, press the minus symbol.
Step 1 Decide whether the normal balance for the account is a debit or a credit.
working without a calculator
Step 2
B. Write the result beside or beneath the larger of the two pin totals from Step 1. For now, circle this final amount.
A. Subtract the smaller total from the larger total.
Step 1 Add the two sides of the account separately. Use tiny pencil figures to write down these two subtotals, one beneath the last item on each side.
Applying the Rules of Debit and Credit
In T-account form, the rules of debit and credit can be simplified even further, using the fundamental accounting equation as shown.
The Rules of Debit and Credit
In accounting terms,debit means left, credit means right.(the two new terms apply to every account)
Credit is the word associated with the right side of an account.
Debit is the word associated with the left side of an account.
Important Features of Ledger Accounts
3. For any item, the correct side for its beginning value is the side on which the item itself would appear in the accounting equation (A = L + OE).
For liabilities and equity items, like bank loan or capital, beginning values are on the right side of the T because liabilities and equity are on the right side of the equation.
For assets, like cash or supplies, beginning values are on the left side of the T because assets are on the left side of the equation.
2. The dollar figure for each item is recorded in the account on the first line.
This is the beginning value for the account.
1. Each individual balance sheet item is given its own T-account with the name of the item at the top.
I Learn to call them the Cash account, the R. Van Loon account, the Packham Products account, the Bank Loan account, and so on.
Step 4 Make sure that the equation is still in balance. The fundamental accounting equation must be respected: assets must equal liabilities plus owner’s equity.
Step 3 Make certain that at least two of the individual items have changed.
but there can never be only one change.
or owner’s equity—to change
It is possible for several items—assets, liabilities
Step 2 See if the owner’s equity has changed.Remember the accounting equation.
Generally, if a business is better off after a transaction, owner’s equity has increased. If a business is worse off after a transaction, owner’s equity has decreased.
For example, if assets decrease and there is a corresponding liability decrease, the owner’s equity will not change. However, if assets decrease and liabilities are unchanged, the equation must be balanced by a decrease in owner’s equity. Eventually, you will come to recognize whether or not owner’s equity has changed.
Step 1 Identify all asset and liability items that must be changed and make all necessary changes.When thinking about the transaction, try to be logical and use common sense.
• Decide whether each item affected is to be increased or decreased.
• Classify each item affected as an asset or a liability.
• Carefully analyze the information given for any transaction.
2. source documents are kept on file for reference purposes and are proof of transactions
1. accounting entries are made from business papers known as source documents
Examples of source documents include hydro bills, telephone bills, cheque copies, store receipts, cash register summaries, and credit card slips.
