Basic Accounting Concepts

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Basic Accounting Concepts

• AA Roundup
• May 30, 2007

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What is Accounting?

• Accounting is a process by which financial
  activities are organized, recorded, analyzed and
  transformed into information in a consistent
  manner.
• Financial activities
• (Transactions)
• Accounting Processes,
• Internal Controls Procedures
• Financial Reports

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Uses Purpose of Accounting
It is used by everyone at home and at work

• Uses at Home
• Review accuracy of bank statements
• Verify your credit card bills
• Make household expenses, pay bills

• Uses at Work
• Track hours worked
• Order supplies
• Pay items ordered
• Take student payments

The purpose of Accounting is to provide
information to help you analyze the financial
situation of the company or household
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Accounting Equation

• Assets Liabilities Fund Balance (General
  Ledger)
• (Revenue Expenses) (Operating
  Ledger)

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Double-Entry System
Every transaction must be two sided to keep the
accounting equation in balance
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Assets, Liabilities Fund Balance

• Assets anything that is owned by the company
  and has money value
• Liabilities everything the company owes to
  others
• Fund Balance (Equity) represents how much
  really belongs to the company and is not owed to
  someone else.

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Ledgers

• Assets Liabilities Fund Balance (General
  Ledger)
• (Revenue Expenses) (Operating
  Ledger)
• General Ledger keeps track of all the companys
  assets, liabilities and fund balance accounts.
• Operating Ledger keeps track of the companys
  revenue and expense accounts.
• - At STC, most department organizations reflect
  expense accounts. Revenues are recorded in
  separate organizations.

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Debits Credits System

• Used to keep the accounting equation in balance
  every transaction has an equal debit and credit
  entry.
• A debit and a credit act as an addition or
  subtraction depending on the type of account.
• Debits used to increase the value of an assets,
  to increase an expense, to reduce revenue or a
  liability account
• Credits used to increase a liability or
  revenue, to decrease an expense and an asset
  account

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Debits Credits Rules
Increases normal balance of account group
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T-Accounts

• Used in traditional manual accounting to analyze
  the two sided (debit credit) posting of
  transactions

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Normal Balance Activity 1
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Normal Balance Activity 1
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Cash vs. Accrual Basis Accounting

• Cash Accounting transactions are recorded only
  when cash is involved.
• Example a purchase is recorded when the items
  are paid.

• Accrual Accounting transactions are recorded as
  they happen, even if no cash is involved.
• Example a purchase is recorded when the items
  are ordered.

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Financial Statements

• Financial Statements are the main result of
  Accounting. The most common statements include
• Balance Sheet reports ending balance of assets,
  liabilities and fund balance accounts at a point
  of time (example as of 8/31/07).
• Income Statement reports cumulative revenue and
  expense transactions for a period of time
  (example Sept Aug)
• Cash Flow reports uses and sources of cash
  
  

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Calendar vs. Fiscal Year

• Calendar Year runs Fiscal Year runs
• January 1st December 31st September
  1st August 31st

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Posting Transactions Activity

• Student Registers for classes (600)

2) Student pays registration fee (35)
3) Order magazine subscription (100)
4) Pay invoice for magazine subscription (100)
5) Received refund for magazine subscription (15)
6) Book in state travel (300)
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Posting to Account Groups
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Closing the Periods

• When periods are closed, the net of revenues and
  expenditures is added (or decreased) to the fund
  balance account.
• Revenue Expenses Income Statement
• 600 - 385 215
• Fund Balance
• Beginning Balance as of 9/1/06 0
• Increase (Decrease) to Fund Balance 215
• Ending Balance as of 8/31/07 215
• Assets Liabilities Fund Balance
  Balance Sheet
• 515 300 215

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Balance Sheet
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Income Statement
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Questions?