BASIC BOOKKEEPING - CHAPTER 1 - AN INTRODUCTION TO BOOKKEEPING

BASIC BOOKKEEPING - CHAPTER 1 - AN INTRODUCTION TO BOOKKEEPING OBJECTIVES - 1. Define the three forms of business organization; 2. Define the five categories of accounts: assets, liabilities, owner's equity, revenues, and expenses; 3. Classify accounts according to the five categories; 4. Identify the generally accepted accounting principles GAAP. ASSETS - Things of value, owned by the business. E.g. Cash, buildings, equipment, mapper handles for sale. BALANCE SHEET - Statement f assets, liabilities and owner's equity. BOOKKEEPING - Os what you do when you keep track of your own financial activities in a personal chequing account. It is your record of the money you received and money you spent. CORPORATION - A business that operates under a government charter. Owners are called shareholders or stockholders. EXPENSES - Costs of operating the business, E.g. Rent, salaries, electricity, water, advertising, etc. GAAAP - Generally Accepted Accounting Principles. All accountants follow the same procedures, the same rules, in how they record accounting activities and report accounting information. INCOME STATEMENT, Financial statement. - Shows the revenue, income, earned the operating costs incurred. Net income is the difference between revenue and costs. LIABILITIES - Debts owing to others, E,g, credit cards, bank loans and mortgages. OWNER'S EQUITY - The value of assets that remains after all debts have been paid off. PARTNERSHIP - A business owned by two or more persons called partners. The partners share the management and decision-making. Each partner is responsible for the debts of the business. PROPRIETORSHIP - A business with only one owner. The owner is the manager, the owner makes all business... REVENUE - Earning from sales of goods and,or services to customers, A business can have more than one kind of revenue. WHAT IS BOOKKEEPING? - Keeping track of money-related activities for an individual or a business. KINDS OF MONEY-RELATED ACTIVITIES - Cash received; Cash paid out; Sales; Purchases; Other activities. PERSONAL BOOKKEEPING - Cash received, Cash paid out, Things owned, BOOKKEEPING FOR BUSINESS - Cash received, Cash paid out, Purchases, Things owned, Debts owed. FINANCIAL STATEMENTS: BALANCE SHEET - The balance sheet shows want you own , assets, and the debts you owe, liabilities. Owners equity is the difference between assets and liabilities. THREE FORMS OF BUSINESS ORGANIZATIONS - Proprietorship, Partnership, Corporation. ASSETS v. EXPENSES - Assets: contribute to the current operating year and to the following year, or years. Expenses: contribute to the current operating year. BRIEF DESCRIPTION OF GAAP - Generally Accepted Accounting Principles All financial accounting information must be recorded and reported clearly, consistently, and objectively according to generally accepted standards. THE BUSINESS ENTITY CONCEPT - Accounting information for a business must be kept separate from personal financial informations of its owners , or from any other business or organization. Financial records of the business must reflect activities of the business alone. CONTINUING-CONCERN CONCEPT - Continuing concern concept: assumes the business will continue operations without interruption for the foreseeable future. THE CONSERVATISM PRINCIPLE - All accounting information for a business must be fair and reasonable. All values recorded must not be overstated or understated. they must be true. OBJECTIVITY PRINCIPLE - Transactions must be based on objective evidence, Each transaction must have a verifiable source document it proved why it happened, what is was for, how much. COST PRINCIPLE - Related to Objectivity principle. When accounting for Purchases, they must be recorded at their cost price, e.g. Merchandise, furniture, equipment, vehicles, etc. It makes the value objective and verifiable. CONSISTENCY PRINCIPLE - In accounting, the same methods and procedures are used consistently form period to period. One method must be chosen and used consistently. Any necessary change of method must be explained clearly on financial statements. TIME PERIOD CONCEPT - Each transaction will relate to a specific financial period, a specific month or a specific operating year. RECOGNITION PRINCIPLE - Revenue is recognized when when the transaction is completed, typically when the bill or invoice is sent to the customer. In a cash transaction, the revenue is recorded when the sale is completed and the cash is received. MATCHING PRINCIPLE - Related to the recognition principle. It states that Each expense item must be recorded in the same accounting period as the revenue it helped to earn. Not doing this: financial statements won't measure results of operation fairly. MATERIALITY PRINCIPLE - If a rule is temporarily ignored, the net income of the company must not be significantly affected. Accountants use GAAP at all times, except when doing so would be expensive or difficult or impractical. E.g. Purchase of stapler for each desk in office, will be recognized as an expense instead of as an asset b/c its cost is insignificant. FULL-DISCLOSURE PRINCIPLE - All information about a company's financial position must be included with the financial statements in order to fully inform the people who read the statements.