EBT 4.01

Accounting & Finance

What is Accounting?Method of

reporting and recording financial activity of a business

Accounting EquationAccounting Equation

Assets = Liabilities + Owner’s Equity

AssetsAnything of value

owned by thebusiness

Cash / Accounts

Receivable Office

Equipment

Building / Real

Estate

Company Cars

Office Furniture

Office Supplies

LiabilitiesMoney owed by

the businessAccounts Payable

Mortgage Payable

Office Supply Store Utilities

Corporation

Taxes Due

Net worth of the business

Owner’s Equity

• Written reports that describe the financial health of a company; prepared on quarterly and annual basis

1. Balance Sheet2. Income Statement3. Statement of Change in Owner’s Equity

Financial Statements

Balance SheetReports assets, liabilities, and owner’s

equity

Income StatementReports the revenue, expenses and the net

income (or loss) of a business for the fiscal period. • Profit

• When a business’s income is greater than its expenses.

• E < I

• Loss• When a business’s

expenses are greater than its income.

• E > I

• Fiscal Period• Specific period of time

covered by an accounting statement or report (1 month or year)

• Revenue• Amount of money that a

company earns

• Expenses• Costs of maintaining and

operating a business.

Statement of Change in Owner’s Equity Reports the changes that have occurred

in the owner’s equity account during the fiscal period.

Example:Net worth in 2010=$30,000Net worth in 2011=$28,500

Statement of Change in OE= ___________

Accounting Activitiesrelated to orderly record-keeping of financial information

Recording daily transactions

Preparing financial statements

Paying bills

Preparing payroll checks

Preparing tax forms

Auditing financial records• Examining financial

records for accuracy and compliance with regulations

Reconciling the checkbook• Bringing the checkbook

into agreement with bank statement

Banking Activitiesrelated to banks, savings, and loans

Accepting deposits and processing withdrawals

Preparing money orders and cashiers checks

Opening new accounts for customers

Processing loan applications

Finance Activitiesrelated to investments and managing finances

Analyzing budgetsBuying and selling

stockConsulting with

businesses on financial matters

Counseling investors

Selling insurance

Managing the finances for the entire company

Accounting & Finance Careers Financial Manager

Accountant Handles all records, taxes,

and prepares all financial documents

CPA Must pass national exam

Auditor Checks the accuracy of

financial records

Bank Teller Handles deposits,

withdrawals, loans, etc.

Book keeper Inputs financial data into

computer Reconciles accounts

Investment Counselor Advises people how to invest

their money

Stock Broker Buys/sells/trades stock on

behalf of their clients

Insurance Representative Double checks fraud claims

on behalf of the bank/company

Check your understanding!

ASSETS = LIABILITIES + OWNER’S EQUITY.

a. Payroll Recordb. Budgetc. Accounting Equation

Money owed by the business (debts, accounts payable)

d. Revenuee. Liabilitiesf. Assets

Anything of value that is owned by the business

a. Revenueb. Lossc. Assets

Net worth of the businessa. Liabilitiesb. Owner’s Equityc. Revenue