Ppt ch 01

Chapter 1
An Introduction
to Bookkeeping
Prepared by
Brooke C. W. Barker
Copyright © 2010 by Nelson Education Limited

Chapter 1: An Introduction to Bookkeeping
Chapter Objectives
After completing this chapter, you will be able to:
 define the three forms of business organization
 define the five categories of accounts: assets, liabilities,
owner’s equity, revenues, and expenses
 classify accounts according to the five categories
 identify the generally accepted accounting principles
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What is bookkeeping?
 Keeping track of money-related activities for an
individual or a business
What kinds of money-related activities?
 Cash received
 Cash paid out
 Sales
 Purchases
 Others activities
1-3

Personal Bookkeeping
Cheque book
Bankbook
Website
Pg 3

Marvin Reese
Cash in
(deposits)
Cash out
(cheques)
Pay 672.50
672.50
Rent
Utilities
Food
Car
Misc
450.00
140.00
200.00
195.00
135.00

Marvin can save 205 each month.
Cash in
(deposits)
Cash out
(cheques)
Pay 672.50
672.50
Rent
Utilities
Food
Car
Misc
450,00
140,00
200,00
195,00
135,00
1345.00 1140.00

If he needed a loan
Things he owns
(cash, or their value in
cash!)
Debts he owes
Cash
Car
Furniture
Savings
bond
1135.00
1500.00
2000.00
2500.00
Credit
cards
Tailor
Garage
450.00
390.00
270.00
7135.00 1110.00

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 Personal Bookkeeping
Cash received
Cash paid out
Things owned
Debts owed
 Bookkeeping for Business
Cash received
Cash paid out
Sales
Purchases
Things owned
Debts owed

Lance – Cash in, Cash out
Cash in
Revenue
Cash out
Expenses
J. Tinnicliffe
L. Porth
B. Szuuts
D. Essig
32.00
25.00
27.00
20.00
Gas
Bags
Misc.
16.00
14.50
5.00
104 35.50

Lance Reed– what his business
owes and owns
Things owned
Assets
Debts owed
Liabilities
Lawnmower
Tools
250.00
40.00
Loan 120.00
290.00 120.00

Financial Statements: Balance Sheet
The balance sheet shows what you own (assets) and
the debts you owe (liabilities). Equity is the difference
between assets and liabilities.
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Financial Statements: Income Statement
The income statement shows the revenue (income)
earned and the operating costs incurred - expenses. Net
income is the difference between revenue and
expenses.
1-12

Chapter 1: Three Forms of Business Organization
Every business is one of the three forms of business organization:
Proprietorship
Partnership
Corporation
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Proprietorship
A business with only one owner.
The owner is the manager, the owner
makes all the business decisions, and
the owner is responsible for all the
debts of the business.
1-14

Partnership
A business owned by two or more
persons (called partners).
The partners share the management
and decision-making.
Each partner is responsible for the
debts of the business.
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Corporation
A business that operates under a
government charter.
Owners are called shareholders or
stockholders.
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Resources to start a business….
Lance decides to start a business…
Google “ starting a small business in
Ontario”

Keeping business records….
 Business records
 You're required by law to keep thorough, organized
books and records—and, in the case of income tax, you
have to hold onto them for at least six years after the
taxation year they relate to.
 This can be somewhat onerous, particularly if you hire
employees.
 If you have an accountant, he/she can either set up and
do your books for you, help find you a good bookkeeper
(bookkeepers are generally less expensive than
accountants) or recommend a good bookkeeping and
accounting software program so you can do it yourself.

Chapter 1: Five Classes of Accounts
Every business divides its accounts into five classes:
Assets
Liabilities
Owner's Equity or Capital
Revenues
Expenses
See pg 9 in text
1-20

Assets
 Things of value, owned by the business.
 Examples include cash, buildings, equipment,
merchandise for sale.
Liabilities
 Debts owing to others.
 Examples include bank loans and mortgages.
Owner's Equity
 The value of assets that remains after all debts have
been paid off.
1-21

Revenues
 Earnings from the sales of goods and/or services to
customers.
 A business can have more than one kind of revenue.
Expenses
 Costs of operating the business.
 Examples include rent, salaries, electricity, water,
advertising, etc.
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Assets vs Expenses
Assets
 Contribute to the current operating year and to the
following year (or years).
 Worth more than $500 (each business sets own amt)
Expenses
 Contribute only to the current operating year.
1-23

Chapter 1: GAAP
All accountants follow the same practices and
procedures (the same rules) in how they record
accounting activities and report accounting
information.
As of 2011 Canada actually switched to International
Financial Reporting Standards for accounting rules,
but still colloquially called GAAP – Generally
Accepted Accounting Standards (old term)
They help to ensure that all accounting information is
fair, real and reliable.
1-24

Chapter 1: GAAP
A brief description of the GAAP principles:
 Business Entity Concept
 Accounting for the business must be kept separate from the
affairs of the owner.
 Continuing-Concern Concept
 Assumes the business will continue operations without
interruption.
 Conservatism Principle
 Information must be fair and reasonable.
 Values must not be overstated or understated.
1-25

Chapter 1: GAAP
 Objectivity Principle
 Transactions must be based on objective evidence.
 Each transaction must have a verifiable source document to
prove when it happened, what it was for, and how much.
 Time-Period Concept
 Each transaction will relate to a specific financial period (a
specific month or a specific operating year).
 Recognition Principle
 Revenue is recognized when it has been earned, whether the
money has been received or not. Expenses are recognized
when they have been consumed, whether paid for or not.
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Chapter 1: GAAP
 Matching Principle
 Related to the Recognition Principle.
 Each expense must be recorded in the same financial period as
the revenue it helped to earn.
 Cost Principle
 Related to the Objectivity Principle.
 Purchases must be recorded at their cost price.
 Consistency Principle
 The same accounting principles must be used period after
period, year after year.
1-27

Chapter 1: GAAP
 Materiality Principle
 GAAP principles must be followed unless the value of a
transaction is considered insignificant (immaterial).
 Full-Disclosure Principle
 All information about a company's financial situation must be
included in the financial statements.
1-28

Pg 12 Exercise 1 - Answers
Account Name Class
1 Cash Asset
2 Delivery Truck Asset
3 Bank Loan Payable Liability
4 Telephone Expense Expense
5 Salaries & Wages Expense
6 Sales Revenue
7 Office Supplies Prepaid Asset
8 Accounts Receivable Asset
9 Service Sales Revenue
10 Capital Equity

Pg 12 – Exercise 1 Answers
11 Tools & Equipment Asset
12 Building Asset
13 Mortgage Payable Liability
14 Rental of Equipment ** Revenue or Expense
15 Advertising Expense Expense
16 Insurance Prepaid Asset
17 Utilities Expense Expense
18 Interest Earned Revenue
19 Bank Asset
20 Office Equipment Asset

Account Name Class
1 Vans & Trucks Asset
2 Accounts Payable Liability
3 Sales of Service Revenue
4 Cash Asset
5 Mortgage Payable Liability
6 Office Supplies Prepaid Asset
7 Capital Equity
8 Accounts Receivable Asset
9 Bank Loan Payable Liability
10 Computers & Printers Asset

Account Name Class
11 Sales of Merchandise Revenue
12 Shipping Supplies Prepaid Asset
13 Office Building & Warehouse Asset
14 Interest Expense Expense
15 Opening Inventory Expense
16 Closing Inventory Expense
17 Office Supplies Expense Expense
18 Parking Fees Earned Revenue
19 Salaries & Wages Expense Expense
20 Taxes Expense Expense

End of Chapter 1
1-34

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