Accounting 101 - Accounting for Non-Accountants

Introduction to the fundamentals of accounting.

1. ACCOUNTING FOR NON-ACCOUNTANTS acctg 112 Armando d. Dalisay jr , cpa , reb , rea, lpt , jd

2. LESSON 2 – THE ACCOUNTING EQUATION AND ANALYZING BUSINESS TRANSACTIONS

3. Learning Outcomes: Discuss the basic accounting equation. Understand the concept of increase/decrease in an amount. Identify the effects of transactions on the accounting equation. Analyze the effects of different business transactions to the accounting equation.

4. Accounting information system The purpose of accounting is to provide a means of recording, reporting, summarizing, and interpreting economic data. At the end of the period, a trustworthy and competently financial reports are prepared and provided on a regular basis. To do this, an accounting system must be designed. Accounting information system is vital for keeping the data to become a document and later a record. Once a system has been designed, reports can be issued, and decisions based upon these reports are made for various departments and other users. Occurrence of business transactions must be substantiated by the source documents like an invoice, official receipts, purchase order, payroll and the like. Then it will be analyzed and processed for recording aided by the accounting equation. The accounting equation represents the relationship between assets, liabilities, and owner’s equity of a business. Finally, the summary of transactions in the form of financial statements are provided to users.

5. Accounting information system

6. What is the Accounting Equation Used for? The basis of accounting is the principle of balance. To carry out economic activities, the company needs funds and that these funds should be given to the company by owner/sole proprietor. The funds owned by the company are called assets . The total amount of funds contributed by them is called capital . If the owner is the only one who contributed, then the equation is Assets = Owner’s Equity However, assets may be contributed by someone else who is not the owner. The debt of the company for these assets is called liabilities . Therefore, now the equation will take the following form: Assets = Liabilities and Owner’s Equity. The left and right sides of the equation must always be equal regardless of the Number of business transactions.

7. Three Elements in the Accounting Equation 1. Assets are things of value owned by a business.    Cash    Accounts receivable    Notes receivable    Supplies    Prepaid Insurance    Prepaid Taxes    Merchandise Inventory (for Merchandising business)    Equipment    Furniture & Fixtures    Land    Building    Patents    Copyrights

8. Three Elements in the Accounting Equation 2. Liabilities . Obligations owed to other companies and people classified as current and long-term liabilities .    Accounts Payable    Notes Payable    Mortgage Payable    Salaries Expense    Taxes Payable    Interest Payable    Unearned revenue

9. Three Elements in the Accounting Equation 3. Capital. Equity of the owner. These are the financial resources or assets owned by a business that are useful in furthering development and generating income. It is the residual interest in the assets after deducting the liabilities of the business. Capital is affected by the following: Effect in the Capital\ Owner’s withdrawals increase Owner’s investment decrease Revenue /Income Expenses increase increase decrease decrease

10. ANALYZING BUSINESS TRANSACTIONS In order to generate financial reports, business transactions have to be analyzed, recorded and summarized. In analyzing transactions, the suggested procedures are as follows: 1) Determine the accounts affected or involved in the transaction. There are two or more accounts involved in every transaction. 2) Determine the effect of the transaction on the accounts involved in terms of increase or decrease.

11. illustrated as follows: ( INC - Increase; DEC – Decrease; NC - No Change)

12. illustrated as follows: ( INC - Increase; DEC – Decrease; NC - No Change)

13. illustrated as follows: ( INC - Increase; DEC – Decrease; NC - No Change)

14. end