Introduction to
Accounting
Introduction to
Accounting
D It is a technique of financial reporting of the
economic activities
D It is language of the business
D To communicate the matters relating to business
operation
D Communicate to whom
D To various individual and institutions who are
directly or indirectly interested in the activities of
business
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What is Accounting?
D Accounting is the process of recording, classifying, analyzing &
interpreting the business transactions which can be measured in
terms of money.
D Thus, accounting keeps a permanent record of all business
transactions.
D Accounting helps in knowing the true financial position of the
business.
D Accounting provides all valid financial information to owners,
banks, customers, government and other outside parties to make
correct decisions.
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Reason for studying accounting
i. Leadership and strategic impact
ii. Varied responsibilities and skill development
iii. Career progression and advancement
iv. Financial management expertise
v. Job stability and market demand
vi. Competitive compensation
vii. Critical thinking and problem-solving
viii. Global opportunities
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Objective or importance of accounting
i. Accurate transaction record
ii. Asset and liability tracking
iii. Business decision guidance
iv. compliance with legal regulations
v. Control over fraud and risk
vi. Economic data recording
vii. Budgeting and planning
viii. Management of cash flow
ix. Measure of performance
x. Tax preparation and filing
xi. Understanding of financial health
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The Accounting Equation (1 of 3)
Basic Accounting Equation
Assets
Provides underlying framework
Resources a business owns
•
for recording and summarizing
economic events • Provide future services or
benefits
• Assets are claimed by either
creditors or owners • Cash, Supplies,
Equipment, A/R, etc.
• If a business is liquidated, claims
of creditors must be paid before
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The Accounting Equation (2 of 3)
Liabilities Owner’s Equity
• Claims against assets (debts and • Ownership claim on total assets
obligations) • Referred to as residual equity
• Creditors (party to whom money is • Investment by owners and revenues
owed) increases owner's equity
• Accounts Payable, Notes Payable, • Drawings and expenses decreases
Salaries and Wages Payable, etc. owner's equity
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The Accounting Equation (3 of 3)
Increase in Owner’s Equity Decrease in Owner’s Equity
• Investment by Owner. Assets • Drawings. A withdraw of cash or
the owner puts into the business other assets for personal use
• Revenues. Increases in assets or • Expenses. Cost of assets consumed or
decreases in liabilities resulting from services used in the process of earning
sale of goods or performance of revenue
services in normal course of business
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Problem
On April 1, Julie Spengel established Spengel's Travel Agency. The following
transactions were completed during the month:
1. Invested $15,000 cash to start the agency
2. Paid $600 cash for April office rent.
3. Purchased equipment for $3,000 cash.
4. Incurred $700 of advertising costs in the Chicago Tribune, on account.
5. Paid $900 cash for office supplies.
6. Performed services worth $10,000: $3,000 cash is received from customers,
and the balance of $7,000 is billed to customers on account.
7. Withdrew $600 cash for personal use
8. Paid Chicago Tribune $500 of the amount due in transaction (4).
9. Paid employees salaries $2,500.
10. Received $4,000 in cash from customers who have previously been billed
in transactions (6);
Problem
Prepare a tabular analysis
Instructions
Prepare a tabular analysis of the transactions using the following column
headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts
Payable, Owner's Capital, Owner's Drawings, Revenues, and Expenses.
Solution
Your Valuable Opinion, Please.