Financial Accounting

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Financial Accounting
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Accounting

• Measures
• Processes
• Communicates
• Financial information to decision makers

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Decision Makers

• Individuals
• Businesses
• Investors
• Creditors
• Taxing Authorities

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Financial Accounting
Financial accounting is primarily concerned with
the recording and reporting of economic data and
activities for a business for outside users.
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Managerial Accounting
Managerial accounting uses both financial
accounting and estimated data to aid management
in running day-to-day operations and in planning
future operations.
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Accounting Cycle
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Flow of Accounting Data
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Transaction

• An event that affects the financial position of a
  particular entity and can be recorded reliably

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Journalizing Transactions

• Record transaction in journal, including a brief
  explanation

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Journal

• Chronological record of the transactions

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Posting

• Posting copying amounts from the journal to the
  ledger
• Periodically, journal entries are posted to
  ledger accounts to determine balances in each
  account

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Ledger

• A group of accounts for a business entity

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Flow of Accounting Data
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Trial Balance

• List of all accounts with their balances

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Flow of Accounting Data
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Structure of Accounting
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Account

• Basic summary device
• Detailed record of increases and decreases in
  specific assets, liabilities, or owners equity
  during a period

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Account Types

• Accounts are grouped in 3 broad categories
• Assets
• Liabilities
• Owners Equity

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The Accounting Equation
Assets Liabilities Owners Equity
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Assets

• Economic resources, expected to benefit the
  business in the future
• Cash
• Accounts receivable
• Merchandise inventory
• Furniture
• Land

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The Accounting Equation
Assets Liabilities Owners Equity
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Liabilities

• Economic obligations payable to an individual or
  organization outside the business
• Accounts payable
• Notes payable
• Salary payable

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The Accounting Equation
Assets Liabilities Owners Equity
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Owners Equity

• Claim of business owner to the assets of the
  business
• Capital
• Withdrawals
• Revenues
• Expenses

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Revenues

• Amounts earned by delivering goods or services to
  customers
• Sales revenue
• Service revenue
• Interest revenue
• Dividend revenue

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Expenses

• Decrease in owners equity that occurs from using
  assets or increasing liabilities in the course of
  delivering goods or services to customers
• Salary expense
• Rent expense
• Utilities expense
• Interest expense

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Capital

• Varies in structure with the type of business
• Sole Proprietorship
• Partnership
• Corporation

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Sole Proprietorship

• One owner
• Not a separate legal entity
• Not a separate tax entity
• Unlimited Liability
• Accounts used
• Capital
• Draw or Withdrawal

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Partnership
1-29

• Two or more owners
• Not a separate legal entity
• Not a separate tax entity
• Unlimited Liability
• Accounts used
• Capital for each partner
• Draw or Withdrawal for each partner

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Corporation
1-30

• One or more owners
• Separate legal entity
• Separate tax entity
• Limited Liability
• Accounts used
• Paid in Capital for owners investments
• Retained Earnings for operational profit/loss

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Owners Equity
Assets Liabilities Owners Equity
Assets - Liabilities Owners Equity
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