Chapter-4-Accounts.ppt

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,4-,*,Accounts,CHAPTER 4,Learning objectives,1.Have a general idea of the three-digit system.,2.Grasp the typical accounts.,3.Be able to classify the accounts.,Accounts,All the business transactions should be sorted out,and classified.,To record the transactions in the accounts,can make,financial statements and other reports prepared,quickly and easily.,An account is the basic storage unit for accounting,data.,Accounts,An accounting system has separate accounts for,each,asset,each liability,and,each component of owners,equity,including revenues and expenses.,Accounts,Different types of businesses will have different accounts.,Manufacturing business,Accounts for its various,manufacturing costs to,report the cost of goods,sold,A retailer,Accounts for the purchase,of its stock merchandise,Accounts,To be able to find an account in the ledger easily,and to identify accounts,an accountant often,numbers them.,In most cases,a,three-digit system,is used in a,business.,In a three-digit system,the first digit refers to the major,financial statement classifications.,Accounts,1,Assets,2,Liability,3,Owners equity,4,Revenues,5,Expenses,Accounts,Now,lets look at an example of,Stevs Barber Shop,Assets,Cash(at Bank),Notes Receivable,Accounts Receivable,Haircutting Fees Receivable,Haircutting Supplies,Office Supplies,Prepaid Rent,Prepaid Insurance,Land,Building,Accumulated depreciation,Building,Photocopy Equipment,111,112,113,114,115,116,117,118,141,142,143,144,Liabilities,Notes Payable,Accounts Payable,Unearned Haircutting Fees,Wages Payable,Mortgage Payable,Owners Equity,Stev Taylor,Capital,Stev Taylor,Withdrawals,Income Summary,Revenues,Haircutting Services Revenue,211,212,213,214,221,311,312,313,411,Chart of Accounts for Stevs Barber Shop,Accumulated depreciation,Haircutting Equipment,Store Equipment,Accumulated Depreciation,Store Equipment,145,146,147,Expenses,Office Salary Expense,Utility Expense,Telephone Expense,Rent Expense,Insurance Expense,Haircutting Supplies Expense,Office Supplies Expense,Depreciation Expense,Buildings,Depreciation Expense,Haircutting Equipment,Depreciation Expense,Store Equipment,511,512,513,514,515,516,517,541,542,543,Chart of Accounts for Stevs Barber Shop,Commonly Used Accounts,The design of accounts must reflect the nature of,the companys business and the needs of its management.,In accounting,some important accounts are used widely,and commonly in each company.,Commonly Used Accounts,Asset Accounts,Liability Accounts,Owners Equity Accounts,Asset Accounts,Asset,accounts,Asset Accounts,Asset Accounts,Current Assets,Long-term Assets,Cash,Notes Receivable,Accounts Receivable,Prepaid Expenses,Physical substance,Intangible assets,Current Assets,Cash,“,Cash”is the account used to record increases and,decreases in cash.,The,increase,of cash is recorded by,debit,to Cash,and the,decrease,is recorded by a,credit,to Cash.,Cash,What is Cash?,Cash consists of money or,any medium of exchange,that a bank will accept at,face value for deposit,and,money in a bank or banks.,The cash account also includes cash on hand such as,that in a cash register or a safe.,Current Assets,Notes Receivable,Often the debtor signs a,promissory note,which,serves as evidence of the debt.,Notes Receivable,Accounts Receivable,More formal than,Notes Receivable,A,promissory note,is a written promise to pay a,definite sum of money at a fixed future date.,When the company,receives the note,the notes,receivable will be,debited,.The,collection of notes,will be recorded by the,credit,to notes receivable.,Interest-bearing notes,Non-interest-bearing notes,Current Assets,Accounts Receivable,Companies often sell goods and services to customers,on the basis of the customers promises to pay in the,future.These sales are called,credit sales,or,sales on,account,and,the promises to pay are known as,accounts receivable,.,Accounts Receivable,The,increase,of Accounts Receivable is,debited,to,Accounts Receivable and the,decrease,is,credited,to Accounts Receivable.,Credit sales increase Accounts Receivable.The,collections of the credit sales decrease Accounts,Receivable.,Current Assets,Prepaid Expenses,The payment of the goods or services is often made,before they are received or used.,These prepaid expenses are considered as assets,before they are used up or expired.,E.g.Prepaid Insurance,Office Supplies,Long-term Assets,Long-term assets,are acquired for use in the operation,of the business with a useful life of more than one year,and are not resold to customers.,Physical substance,Intangible assets,Long-term Assets,Land,Physical substance,Buildings,Equipment,Debit,Credit,Purchase,Sale,Purchase,Sale,Building and equipments owned,by a company must be depreciated due to the wear and tear.,Long-term Assets,Equipment,Office Equipment,account,Store Equipment account,Trucks and Automobiles account,Machinery and Equipment,account,Long-term Assets,computer software,patents,Copyrights,Trademark,brand name,Franchises,motion picture films,customer lists,mortgage servicing rights,Licenses,import quotas,customer and supplier relationships.,Intangible assets,Long-term Assets,Intangible assets,IAS defines an intangible asset as identifiable,non-monetary asset without physical substance.,An intangible asset is identifiable when it is capable,of being,separated,and,sold,transferred,licensed,rented,or,exchanged,either individually or as,part of a package.,Long-term Assets,The cost of intangible,assets should be allocated to the accounting periods,that they benefit.,Such allocation is,called,amortization.,Intangible assets,Liability Accounts,Liability,accounts,Short-term Liabilities,Long-Term Liabilities,Liability Accounts,Liability Accounts,Notes Payable,Accounts Payable,Other Short-Term Liabilities,Short-term Liabilities,Notes Payable,Notes Payable,Notes Receivable,It is used to record increases and decreases in,promissory note amounts owed to creditors.,Credited?,Debited?,Short-term Liabilities,It usually arises as the result of the purchase of,merchandise,services,supplies,or equipment on,credit.,Accounts Payable,Accounts Payable,Accounts Receivable,Credited?,Debited?,Short-term Liabilities,Other Short-Term Liabilities,The current portion of long-term liability,Wages Payable,Taxes Payable,Rent Payable,Interest Payable,Customers Advances(Unearned Revenues),Long-term Liabilities,Liabilities that will not be due during the next year,or during the normal operating cycle are listed as,long-term liabilities.,Notes due in more than one year,Long-term liabilities:,Bonds,Property mortgages,Owners Equity Accounts,Owners,Equity,accounts,Owners Equity Accounts,The resources invested by the owners in a business,are called,owners equity,.,Capital Account,Withdrawals Account,Revenues Accounts,Expense Accounts,Owners Equity Accounts,Owners Equity Accounts,Arises,Owners investment and the net income,Decrease,Owners withdrawals,When someone invests in his or her own company,the amount of the investment is recorded in a capital,account.,Capital Account,For instance:,when Stev Taylor invested his personal resources in his firm,he recorded the amount in the owners equity account titled,Stev Taylor,Capital.,Withdrawals Account,For example,an account called,Stev Taylor,Withdrawals,would be used to record the amount that is taken by Stev Taylor out of his company.,When the owner of a sole proprietorship use part of,the assets of the business to pay personal living,expenses it should be recorded in the withdrawals,account.,Revenues and,Expense Accounts,Accounts Revenues increase owners equity,and,expenses decrease owners equity.,The more the revenues,the more the owners equity is,increased.,The more the expenses,the more the owners equity is,decreased.,Revenues Accounts,Sales Revenue,Service Revenue,Photocopy Fees Earned,Expense Accounts,Wages Expense,Taxes Expense,Interest Expense,Supplies Expense,WE ARE SAILING RIGHT ALONG!,