1、Module 2: Business Elements and Transactions,OBJECTIVES Define assets, liabilities and owners equity and understand the relationship of revenues and expenses to owners equity Describe the accounting concepts and terms that help record the activities of a business Understand that the accounting equat
2、ion provides the basis for recording business transactions Describe and understand the nature of business transactions and their effect on the accounting equation. Define and understand all the steps in the complete accounting cycle. Explain the rules of debit and credit and how to apply these rules
3、 in analysing transactions. Prepare general journal entries to record common business transactions,Economic Resources,Claims to Economic Resources,The Accounting Equation,Assets,=,Liabilities + Owners Equity,Assets,What is an asset? It is something a company owns or controls which has future economi
4、c value. land building equipment goodwill,Liability,What is a liability? It is something a company owes. money service legal retainers product magazines,Owners Equity,What is owners equity? It is whats left of the assets after liabilities have been deducted. the same as net assets the owners claim o
5、n the entitys assets,Transactions that Affect Owners Equity,OWNERS EQUITY INCREASES,OWNERS EQUITY DECREASES,Owner Investments in the Business,Revenues,Expenses,Owner Drawings from the Business,Owners Equity,Revenues,What are revenues? They are amounts received or to be received from customers for sa
6、les of products or services. sales performance of services rent received interest received,Expenses,What are expenses? They are amounts that have been paid or will be paid later for costs that have been incurred to earn revenue. salaries and wages electricity and gas supplies used advertising,Accoun
7、ting for Business Transactions,What is a transaction? It is any event that both affects the financial position of the business and can be reliably recorded.,Accounting for Business Transactions,The equation always stays in balance. Each transaction affects at least two accounts, sometimes more. Some
8、 transactions affect only one side of the equation; some affect both sides.,Double-Entry Accounting,Double entry bookkeeping means to record the dual effects of each business transaction. Assets = Liabilities + Owners Equity Assets are on the left (debit) side. Liabilities and Equity are on the righ
9、t (credit) side.,The T-Account (Ledger Account),Account Title,Debit,Credit,LEFT SIDE,The T-Account,Account Title,Debit,Credit,RIGHT SIDE,Owners Equity,Assets,Liabilities,Debit +,Debit ,Credit ,Debit ,Credit +,Credit +,=,+,The Rules of Debit and Credit,One debit,One credit,Each transaction is recorde
10、d with at least:,Total debits must equal total credits.,The Double-Entry System,AND,Journals,What is a journal? It is a list in chronological order of all the transactions for a business. Identify transaction from source documents. Specify accounts affected. Apply debit / credit rules. Record transa
11、ction (with description).,Journals,What does a journal entry include? date of the transaction title of the account debited title of the account credited amount of the debit and credit (description of the transaction) dollar signs are omitted,Bound books,Computer printout,Cards,Loose leaf pages,Ledge
12、r,What is a ledger? It is a collection of all accounts utilised by an entity during an accounting period.,Normal Account Balances,Assets = Liabilities + Owners Equity Debits = Credits The side where we expect increases to be recorded is the normal balance side. So assets usually have a Dr balance.Bu
13、t cash could be Dr or Cr, why?,Expanding the Accounting Equation to Account for Revenue and Expenses,Assets = Liabilities + Owners Equity Capital contributions and Revenues increase Owners Equity. Drawings and Expenses decrease Owners Equity. So:Assets = Liabilities + Capital Drawings + . Revenue Expenses,NEXT WEEK.,The Chart of Accounts Using Ledgers The Trial Balance Accrual and Deferral Adjusting Entries,
