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