Three Topics:
- Generally Accepted Accounting Principles
-The Accounting Eqaution
-The Rule of Debit and Credit
Advantages of applying accounting principles, rules, and procedures: * A properly prepared financial statement communicates the profits to shareholders and employees * An investor will be more apt to consider a company whose financial statements disclose all activities * A standard format for financial statements can be read by investors and banks.
Generally Accepted Accounting Principles (GAAP)- a response to the need for standardization.
-Sole Proprietorship- owned by an individual. Use their own money to finance the business. Most common legal form of business
Partnership: owned by two or more people. They share the profits and the responsibility of any debts
Corporation- owned by stockholders (not responsible for the business’s debt’s. An elected board of directors is responsible for managing the corporation.
Three types of account types: 1. Asset” property or property rights a business owns. Property includes: cash, accounts recievable, merchandise to be sold, supplies, equipment and land. Property rights include: patents, franchises and copyrights. 2. Liability: Debts or obligations owed by a business; cash, salaries, taxes, rent to landlords, loans etc… 3. Owners Equity: the financial interest of the owner of the business, or the owner’s claim on the assets of the business. .Equity is also considered as net assets (remaining assets after deducting the business’s liabilities)
Accounting Equation: assets = liabilities + owners equity ( must balance out)
Ex: $5,000,000= $3,500,000 + $1,500,000 = Balanced
If the equation doesn’t balance there is a mistake.
Accounting Terms:
Left:
Right:
Accounting Records:
- The General Journal: records all transactions. Formatted to help you keep transaction data well organized,