Basics of Accounting
What is the main purpose of Accounting?
Record, organize and reporting financial info about a business
What is the purpose of an Income Statement?
To show a company’s revenues and expenses over a period of time.
What does “Beginning Capital” represent?
The money the owner started with before any changes.
What does a Balance Sheet show?
A company’s financial position at a specific date.
What are the three main financial statements covered in the presentation?
Income Statement, Statement of Changes in Equity, and Balance Sheet.
Name 3 key sections found in most financial statements
What is the difference between revenue and expense?
Revenue is the amount of money earned whilst expense is money spent.
What are “Owner Investments”?
Money the owner adds into the company during the period.
What are Assets? Give Example
Items of value owned by the business (ex: Cash, Supplies, Equipment).
What happens to capital when a business earns a net profit?
The owner’s capital increases.
What do financial statements help people understand about a business?
The company’s financial position and performance.
Name an example of revenue from the following choices. (A.) Group Training Revenue, (B.) Telephone Expense, (C.) Mortgage, (D.) Cash
(A.) Group Training Revenue
What are “Owner Withdrawals”?
Money the owner takes out of the company during the period.
What are Liabilities? Give Example
Debts or obligations that the business owes (ex: Accounts Payable, Notes Payable, Mortgage).
What happens to capital when a business has a net loss?
The owner’s capital decreases.
What type of information does accounting measure and communicate?
info like revenues, expenses, assets, and debts.
Name an example of expenses from the following choices. (A.) Group Training Revenue, (B.) Telephone Expense, (C.) Mortgage, (D.) Cash
(B.) Telephone Expense
What does “Ending Capital” represent?
The money left in the business after investments, withdrawals, and profit/loss are considered.
What is Equity?
The owner’s interest or claim in the business after liabilities are subtracted from assets.
Why must the Balance Sheet “balance”?
Because total assets must equal total liabilities plus equity.
Why is accounting often called the “language of business”?
Because it communicates how a business is performing financially.
How do you calculate Net Profit or Net Loss?
Total Revenue − Total Expenses = Net Profit (or Net Loss if negative).
What are the four parts that make up the Statement of Changes in Equity?
Beginning Capital, Owner Investments, Owner Withdrawals, and Net Profit/Loss.
What is the basic accounting equation shown in the Balance Sheet?
Assets = Liabilities + Equity.
If a company has $80,000 in assets and $50,000 in liabilities, what is its equity?
Because total assets must equal total liabilities plus equity.