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Title:

Financial Accounting

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Title: The Role of the Auditor in the American Economy Author: Ray Whittington Last modified by: Judy Beebe Created Date: 6/17/1995 11:31:02 PM Document presentation ... – PowerPoint PPT presentation

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Title: Financial Accounting


1
Financial Accounting
2
Accounting
  • Measures
  • Processes
  • Communicates
  • Financial information to decision makers

3
Decision Makers
  • Individuals
  • Businesses
  • Investors
  • Creditors
  • Taxing Authorities

4
Financial Accounting
Financial accounting is primarily concerned with
the recording and reporting of economic data and
activities for a business for outside users.
5
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.
6
Accounting Cycle
7
Flow of Accounting Data
7
8
Transaction
  • An event that affects the financial position of a
    particular entity and can be recorded reliably

9
Journalizing Transactions
  • Record transaction in journal, including a brief
    explanation

9
10
Journal
  • Chronological record of the transactions

10
11
Posting
  • Posting copying amounts from the journal to the
    ledger
  • Periodically, journal entries are posted to
    ledger accounts to determine balances in each
    account

11
12
Ledger
  • A group of accounts for a business entity

13
Flow of Accounting Data
13
14
Trial Balance
  • List of all accounts with their balances

14
15
Flow of Accounting Data
15
16
Structure of Accounting
17
Account
  • Basic summary device
  • Detailed record of increases and decreases in
    specific assets, liabilities, or owners equity
    during a period

17
18
Account Types
  • Accounts are grouped in 3 broad categories
  • Assets
  • Liabilities
  • Owners Equity

18
19
The Accounting Equation
Assets Liabilities Owners Equity
20
Assets
  • Economic resources, expected to benefit the
    business in the future
  • Cash
  • Accounts receivable
  • Merchandise inventory
  • Furniture
  • Land

21
The Accounting Equation
Assets Liabilities Owners Equity
22
Liabilities
  • Economic obligations payable to an individual or
    organization outside the business
  • Accounts payable
  • Notes payable
  • Salary payable

23
The Accounting Equation
Assets Liabilities Owners Equity
24
Owners Equity
  • Claim of business owner to the assets of the
    business
  • Capital
  • Withdrawals
  • Revenues
  • Expenses

25
Revenues
  • Amounts earned by delivering goods or services to
    customers
  • Sales revenue
  • Service revenue
  • Interest revenue
  • Dividend revenue

26
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

27
Capital
  • Varies in structure with the type of business
  • Sole Proprietorship
  • Partnership
  • Corporation

28
Sole Proprietorship
  • One owner
  • Not a separate legal entity
  • Not a separate tax entity
  • Unlimited Liability
  • Accounts used
  • Capital
  • Draw or Withdrawal

29
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

30
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

31
Owners Equity
Assets Liabilities Owners Equity
Assets - Liabilities Owners Equity
32
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