Accounting

A
Mrs. B's Accounting Lessons
Let's spend a little time discussing why we need to know
this simple equation and begin to understand how it works.

The main point to having this little page is to help show how money flows through a business. My little graphics are for discussion purposes only. Computers have changed the formats of Journals, Ledgers, and financial statements but the basic concepts have not changed for the last several hundred years. Determining value has been, is now, and always will be the big deal. Understanding the three ( 3 ) financial statements that a company makes over and over again and understanding the reason for the order in which they are made opens the doors to determining a companies value.

Vocabulary Words	The Debit - Credit rule	The "T" Account
"T" Accounts Expanded	What a General Journal looks like	What is Posting
What a General Ledger page looks like	Special Journals	Special Ledgers
What an Income Statement looks like ( Profit or Loss Statement )	What a Statement of Owner's Equity looks like	What a Balance Sheet looks like
What your 1st Balance Sheet looks like	How the three ( 3 ) Financial Statements relate to each other	Your Chart of Accounts
What is the Accounting Cycle	What a Trial Balance sheet looks like	What is Closing the Accounts
What is Adjusting the Accounts	Why do a Post-Closing Trial Balance	Work Sheets
Capital	Single Propitiator and Partnerships	Corporations
Retained Earnings	The difference between a Statement of Owner's Equity and a Statement of Retained Earnings	Liquidity Formulas 1. Working Capital Method 2. Current Ratio Method
Merchandizing
Common Stock	Preferred Stock	Earnings Yield
Dividend Yield	Simple Interest	Compound Interest
Bonds	Sinking Fund

Accounting	The word used to describe how to keep financial records of what a business does. Accounting shows how money flows through a business.
Account	A device used to sort accounting information into similar groupings. There are many different accounts. These different account items have there own page. Cash, delivery truck, office supplies, accounts payable, accounts receivable and so on. Because you can have so many different accounts, you will assign a number to each account. Having an account number is essential to keeping track of accounts.
Chart of Accounts	A list of all the accounts that you have with the account number.
Assets Liabilities Owner's Equity	Something of value that a business owns. Example: Cash, pencils, books bags, office equipment, trucks, cars, accounts receivable, and so on...... Debts or obligations to the creditor's of the business. Example: unpaid amounts owed to someone......accounts payable, taxes............. The owner's claim against the assets of the business. Sometimes called the Net Worth of a company. For now, we will record the changes in Owner's Equity in an account called the Capital Account.
Transactions	An invoice, deposit slip, check, or some type of document showing business activity that can be measured in monetary terms. A transaction will ALWAYS effect at least TWO ( 2 ) accounts.
Accrual Method	Recording (matching) the activities of a business during the the accounting period in which the activity occurred. You probably run your household on what is known as the Cash Basis. In business, you would want to use the Accrual Basis because the Accrual Basis allows you to get an accurate picture of how your business is doing.
Good Will	Depending on which side you're on - a very subjective amount considered value.

The DEBIT - CREDIT Rule

Each of the accounts in a Ledger will have a Debit Column and a Credit Column. Debits and Credits increase or decrease amounts on a ledger page account without having to use a plus (+) or minus (-) sign.

No matter what - always
DEBIT on the LEFT and CREDIT on the RIGHT.
This basic rule never changes.
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	"T" Accounts Expanded
Now that we know that we always debit on the left and credit on the right we can begin to discuss how we INCREASE and DECREASE the balances in accounts. The ( + ) sign means INCREASE and the ( - ) sign means DECREASE. Note that when you cross over the ( = ) sign you reverse the way accounts increase and decrease.

Assets	To INCREASE ( + ) the balance in Asset Accounts you DEBIT To DECREASE ( - ) the balance you CREDIT
Liabilities	To INCREASE the balance in Liability Accounts you CREDIT To DECREASE the balance you DEBIT
Owner's Equity	To INCREASE the balance in Owner's Equity Accounts you CREDIT To DECREASE the balance you DEBIT

The General Journal

You deposit money into your business checking account. A Transaction has occurred. You enter the transaction in your Journal. You make two ( 2 ) entries in the Journal showing that a Debit and a Credit have been made and the amounts in your Journal balance. This is commonly known as DOUBLE ENTRY accounting (bookkeeping). You have ONE ( 1 ) transaction and you make TWO ( 2 ) entries in the Journal.

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10
POSTING

The word POSTING simply means copying the amounts in the Journal to the Ledger.

8

Ledger

This is what a Ledger page looks like. For now, you should know
that the amounts on Ledger pages come from your General Journal.
Each Account has a Ledger page and an account number.

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We have gone over the very basics for a service business in our discussions. Once you have made your first ( 1st ) balance sheet and begin to do business you must make the three ( 3 ) financial statements in the order shown above. We now need to discuss what Closing and Adjusting accounts means and how to do these accounting procedures. We are going to discuss how your business accounting will change when merchandizing inters the business picture. The word inventory will be defined and we'll see how to account for inventory (merchandise).

Looking Ahead:
These basic fundamental concepts are very very important in that when we begin to use our computerized accounting programs you will know and understand what is happening behind the scene. When we begin to use our accounting programs the concepts that we have
learned will remain exactly the same even though the physical formats from our accounting programs can and do vary according to the particular types of businesses we are discussing.

Revenues	Expenses	Losses
Gains	Investments	Withdrawals
Disbursements	Dividends	Deferrals