Introductory Accounting- Basic Accounts and Equations

This is a continuation of "Introduction to Business Terms and Concepts of Financial Accounting. This pathway will introduce various types of accounts and allow participants to explore introductory "Accountant Math."

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    Course Description

    Prerequisite-"Introduction to Business Terms and Concepts of Financial Accounting"

    At the end of this path  you will: 

    Gain a Basic Understanding of Accounting Uses and Terminology

    Understand the Role of Mathematics in Accounting 

    Define and Utilize the Accounting Equation 

    Be able to Calculate a Business Net Income/ Net Loss

     Be able to Utilize a Chart of Accounts

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    Accounting 101 Basic Review

    Accounting Definition 

    As defined in an earlier path, Accounting is the process of providing financial information primarily numerical that is useful to decision makers. 


    The primary goal of accounting is to provide a numerical backbone that supports the business. 


    Every decision of a business in one way or another is rooted in accounting. 

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    Real Life Application "Adding a New Food Service"

    You work in Marketing or Management for a Food Service Company. They are looking to implement a form of Room Service Dining on college campuses across the country. You and your team have just given a great presentation. You have all the logistics figured out. Then an executive for the company asks, "What sort of costs did you consider"? Unless you can answer this question you presentation has already failed. All that work is for nothing, unless you have someone on your team who understands accounting. 


    By the end of this course, you will know the basic terminology of entry level accounting. You will also be able to compute to basic accounting mathematical equations. At the end of this course you will have the knowledge to answer the executive in the above scenario. 


    This is a prime example of why it is important that all business majors have a basic understanding of Accounting Knowledge is and terminology. 

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    Basic Terms

    Account 

    An account is a collection of related data and information about one particular aspect of a business. 

    Example: On January 1 2015 ABC company had $100 in Cash. On January 2  a $50 inflow of cash sales increases cash account to $150. 

    Common Types of Accounts 

    Balance Sheet Accounts 

    Asset

    Probable future economic benefit obtained or controlled by a particular entity as a result of past transaction or event.

    Anything of value that a business owns

    Examples: Cash, Accounts Receivable, Inventory 


    Liability

    Probable future sacrifice of economic benefit arising from the present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of a past transaction or event.

    Liabilities represent an amount owed or an unearned revenue 

    Examples: Accounts Payable, Notes Payable, Unearned Revenue 


    Equity

    Residual interest in the assets of an entity that remains after deducting its liabilities.

    For Business Enterprise Equity represents ownership investment.

    Examples: Stockholder’s Equity, Common Stock, Capital 

    If the company is a Corporation than the Company will issue stock. 

    If the company is a Sole Proprietorship or a Partnership than Equity is held in a Capital Account. 


    Income Statement Accounts 

    Revenue

    Inflows or other enhancements of assets of an entity, or a settlement of liabilities or a combination of both during a period

    from delivering or producing goods or rendering services.

    Or other activities that constitute the entity’s ongoing  major or central operations.o

    Revenue what you get in exchange for providing goods and services.

    Examples: Sales Revenue, Rental Revenue 


    Expense

    Outflows or other using up of assets of an entity or an incurrence of liabilities or a combination of both during a period from delivering or producing goods or rendering services

    Or other activities that constitute the entity's ongoing major or central operations.

    Expenses are the costs of doing business.

    Examples: Utilities Expense, Wage Expense, Insurance Expense.


    Other Terms 

    Chart of Accounts

    A listing of all the various types of accounts for a business in one particular location. 


    Fiscal Period

    The way that a company divides up the calendar year for business operations. The longest a fiscal period can be is one year. The shortest fiscal period is one month. The fiscal year is often times broken down into four periods, or four quarters.

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    Basic Terms

    <p><b><i><u>Account&nbsp;</u></i></b></p><p>An account is a collection of related data and information about one particular aspect of a business.&nbsp;</p><p><b>Example: On January 1 2015 ABC company had $100 in Cash. On January 2 &nbsp;a $50 inflow of cash sales increases cash account to $150.&nbsp;</b></p><p><u><i><b>Common Types of Accounts&nbsp;</b></i></u></p><p><u><i><b>Balance Sheet Accounts&nbsp;</b></i></u></p><p><b><i><u>Asset</u></i></b></p><p> Probable future economic benefit obtained or controlled by a particular entity as a result of past transaction or event. </p><p><b><i>Anything of value that a business owns </i></b></p><p><b>Examples: Cash, Accounts Receivable, Inventory&nbsp;</b></p><p><b><i><u><br></u></i></b></p><p><b><i><u>Liability </u></i></b></p><p> Probable future sacrifice of economic benefit arising from the present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of a past transaction or event. </p><p>Liabilities represent <b><i>an amount owed or an unearned revenue&nbsp;</i></b></p><p><b>Examples: Accounts Payable, Notes Payable, Unearned Revenue&nbsp;</b></p><p><b><i><u><br></u></i></b></p><p><b><i><u>Equity </u></i></b></p><p> Residual interest in the assets of an entity that remains after deducting its liabilities. </p><p>For Business Enterprise Equity represents <b><i>ownership investment.</i></b></p><p><b>Examples: Stockholder’s Equity, Common Stock, Capital&nbsp;</b></p><p><b>If the company is a Corporation than the Company will issue stock.&nbsp;</b></p><p><b>If the company is a Sole Proprietorship or a Partnership than Equity is held in a Capital Account.&nbsp;</b></p><p><b><i><u><br></u></i></b></p><p><b><i><u>Income Statement Accounts&nbsp;</u></i></b></p><p><b style="letter-spacing: 0.01rem; line-height: 1.5;"><i><u>Revenue</u></i></b><br></p><p><b><i> Inflows</i></b> or other enhancements of assets of an entity, or a settlement of liabilities or a combination of both during a period </p><p>from delivering or producing goods or rendering services. </p><p>Or other activities that constitute the entity’s <b><i>ongoing<span style="letter-spacing: 0.100000001490116px;">&nbsp; major or central operations.</span></i></b><span style="letter-spacing: 0.01rem; line-height: 1.5;">o</span></p><p>Revenue <b><i>what you get in exchange for providing goods and services.</i></b></p><p><b>Examples: Sales Revenue, Rental Revenue&nbsp;</b></p><p><b><br></b></p><p><b><i><u>Expense </u></i></b></p><p><b><i> Outflows</i></b> or other using up of assets of an entity or an incurrence of liabilities or a combination of both during a period from delivering or producing goods or rendering services </p><p>Or other activities that constitute the entity's <b><i>ongoing major or central operations. </i></b></p><p>Expenses are the <b><i>costs of doing business. </i></b></p><p></p><p></p><p></p><p><span style="letter-spacing: 0.01rem; line-height: 1.5;"><b>Examples: Utilities Expense, Wage Expense, Insurance Expense.</b></span><br></p><p><br></p><p><b><i><u>Other Terms&nbsp;</u></i></b></p><p><b><i><u>Chart of Accounts </u></i></b></p><p> A listing of all the various types of accounts for a business in one particular location.&nbsp;</p><p><br></p><p><b><i><u>Fiscal Period</u></i></b></p><p> The way that a company divides up the calendar year for business operations. The longest a fiscal period can be is one year. The shortest fiscal period is one month. The fiscal year is often times broken down into four periods, or four quarters.</p>

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    Introductory Accounting Chart of Accounts

    Please take a moment and explore the introductory Chart of Accounts. These are essential to all accountants. However, be advised that each Business Chart will slightly different. This should still serve as a general format.

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    Introductory Accounting Chart of Accounts

    Please take a moment and explore the introductory Chart of Accounts. These are essential to all accountants. However, be advised that each Business Chart will slightly different. This should still serve as a general format.

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    Accountant Math

    Accounting is rooted in the four basic staples of mathematics, addition subtraction, multiplication, and division. As an accountant you will use each of these mathematical tools rather frequently. Let us first look at addition and subtraction by examining our first two equations. 

    The Accounting Equation 

    Net Income / Net Loss Equation 

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    Accountant Math

    <p>Accounting is rooted in the four basic staples of mathematics, addition subtraction, multiplication, and division. As an accountant you will use each of these mathematical tools rather frequently. Let us first look at addition and subtraction by examining our first two equations.&nbsp;</p><p><b>The Accounting Equation&nbsp;</b></p><p><b>Net Income / Net Loss Equation&nbsp;</b></p>

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    The Accounting Equation

    What is The Accounting Equation ? 

    Assets = Liabilities + Owner's Equity 


    Sample Problem 

    Assets:      $80,000 

    Liabilities: $50,000 

    Equity:     $30,000  


    Accounting Equation: $80,000 = $50,000 + $30,000 

    If Given Two You can Solve for the Third 


    Fill in the Missing Value 

    Assets:   $35,000 

    Liabilities:   ? 

    Equity:   $15,000 

    $35,000 = x + $15,000 

    -$15,000      - $15,000

    $20,000 =        x 

    Liabilities = $20,0000 



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    The Accounting Equation

    <h3>What is The Accounting Equation ?&nbsp;</h3><h4>Assets = Liabilities + Owner's Equity&nbsp;</h4><p><br></p><p><b><i><u>Sample Problem&nbsp;</u></i></b></p><p>Assets: &nbsp; &nbsp; &nbsp;<b>$80,000&nbsp;</b></p><p>Liabilities:&nbsp;<b>$50,000&nbsp;</b></p><p>Equity: &nbsp; &nbsp;&nbsp;<b>$30,000 &nbsp;</b></p><p><b><br></b></p><p><b>Accounting Equation: $80,000 = $50,000 + $30,000&nbsp;</b></p><p><i><b>If Given Two You can Solve for the Third&nbsp;</b></i></p><p><i><b><br></b></i></p><p><i><b><u>Fill in the Missing Value&nbsp;</u></b></i></p><p>Assets: &nbsp;&nbsp;<b>$35,000&nbsp;</b></p><p>Liabilities:<b>&nbsp; &nbsp;?&nbsp;</b></p><p>Equity: &nbsp;&nbsp;<b>$15,000&nbsp;</b></p><p><b>$35,000 = x + $15,000&nbsp;</b></p><p><b>-$15,000 &nbsp; &nbsp; &nbsp;- $15,000</b></p><p><b><u>$20,000 = &nbsp; &nbsp; &nbsp; &nbsp;x&nbsp;</u></b></p><p><b><u>Liabilities = $20,0000&nbsp;</u></b></p><p><br></p><p><br></p>

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    Net Income Net Loss Explained

    The Accounting Equation is one of the two most basic equations of accounting. The other equation is used to determine whether a company has earned a net income or incurred a net loss.

    Net Income Definition

    The amount of revenue that remains in the revenue account after expenses are deducted for a particular period.

    Net income represents a business’s profit. 


    Net Loss Definition

    The amount by which expenses incurred exceeds  revenues earned by a business in a particular fiscal period.   


    A Net Loss represents a negative profit a business.

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    Net Income Net Loss Explained

    <p>The Accounting Equation is one of the two most basic equations of accounting. The other equation is used to determine whether a company has earned a net income or incurred a net loss.</p><p><b><i><u>Net Income Definition</u></i></b></p><p> The amount of revenue that remains in the revenue account after expenses are deducted for a particular period. </p><p><b>Net income represents a business’s profit.&nbsp;</b></p><p><br></p><p><b><i><u>Net Loss Definition </u></i></b></p><p> The amount by which expenses incurred exceeds &nbsp;revenues earned by a business in a particular fiscal period. &nbsp;&nbsp;</p><p><br></p><p><b>A Net Loss represents a negative profit a business.</b></p>

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    Net Income/ Net Loss Equation

    The relationship between Net Income and Net Loss is expressed in terms of Revenues and Expenses. 

    The most basic way to understand Net Income is as follows. 

    If Revenues > Expenses than a business will gain a Net Income. 

    If Revenues < Expenses than a business incurred a Net Loss 


    Net Income Example 

    Revenue: $80,000 

    Expenses: $20,000 

    Revenue - Expenses = Net Income/Net Loss 

    $80,000 - $20,000 = $60,000 Net Income


    Net Loss Example 

    Revenue: $15,000 

    Expenses: $18,000 

    Revenue - Expense = Net Income/Net Loss 

    $15,000 - $18,000 = ($3,000) Net Loss 


    Just like the Accounting Equation if given two components of the Net Income/Net Loss Equation you can calculate the third. 




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    Net Income/ Net Loss Equation

    <p>The relationship between Net Income and Net Loss is expressed in terms of Revenues and Expenses.&nbsp;</p><p>The most basic way to understand Net Income is as follows.&nbsp;</p><p>If <b>Revenues &gt; Expenses </b>than a business will gain a <b>Net Income.&nbsp;</b></p><p>If <b>Revenues &lt; Expenses</b> than a business incurred a <b>Net Loss&nbsp;</b></p><p><b><i><u><br></u></i></b></p><p><b><i><u>Net Income Example&nbsp;</u></i></b></p><p>Revenue: $80,000&nbsp;</p><p>Expenses: $20,000&nbsp;</p><p>Revenue - Expenses = Net Income/Net Loss&nbsp;</p><p>$80,000 - $20,000 = <b><u>$60,000 Net Income</u></b></p><p><b><u><br></u></b></p><p><b><u><i>Net Loss Example&nbsp;</i></u></b></p><p>Revenue: $15,000&nbsp;</p><p>Expenses: $18,000&nbsp;</p><p>Revenue - Expense = Net Income/Net Loss&nbsp;</p><p>$15,000 - $18,000 =<b><u> ($3,000) Net Loss&nbsp;</u></b></p><p><br></p><p>Just like the Accounting Equation if given two components of the Net Income/Net Loss Equation you can calculate the third.&nbsp;</p><p><b><u><br></u></b></p><p><b><u><br></u></b></p><p><b><u><br></u></b></p>

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    Introductory Accounting: Basic Accounts and Equations PowerPoint

    This PowerPoint was designed d to present the topics of this path in a single presentation. This PowerPoint is recommended for visual learners.

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    Course Summary

    Account Definitions

    Asset- something of value owned or controlled by a business

    Liability- An amount owed by a business or an unearned revenue 

    Equity- For business enterprise equity represents ownership investment.

    Revenue- Inflows or other enhancements of an entity

    Expense- Outflows or other using up of assets or the process of incurring liabilities 


    General Definitions

    Fiscal Period- a particular length of time during a business’s fiscal year.

    Chart of Accounts- a listing of all the various types of accounts in a business. 

    Liquidity- How fast an asset can be converted to cash 


    The Accounting Equation

    Assets = Liabilities + Equity

    (Given any two of these amounts you can calculate the third) 


    Net Income / Net Loss

    Net Income- represents a business profit

    Net Loss- represents the amount by which expenses exceed 

    Revenue - Expenses = Net Income / Net Loss 

    Determining Net Income/Net Loss 

    Revenue > Expenses = Net Income

    Revenue < Expenses = Net Loss 

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    End of Course Quiz

    Now that you have completed the "Introductory Accounting- Basic Accounts and Equations test your knowledge of basic Accounting Terminology and Mathematics by completing this Twenty Question Quiz. 

    At the end of this Quiz please proceed to "Introduction to Financial Statements" 

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    End of Course Quiz

    <p>Now that you have completed the "Introductory Accounting- Basic Accounts and Equations test your knowledge of basic Accounting Terminology and Mathematics by completing this Twenty Question Quiz.&nbsp;</p><p>At the end of this Quiz please proceed to "Introduction to Financial Statements"&nbsp;</p>

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