Chapter One: History of Accounting

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Chapter One History of Accounting
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Quick History

• 1400s Luca Pacciola (mathematician in Venice)
• Additional chapters in a math textbook
• Never before put in writing due to secrecy of
  financials of business
• Changes Occurred during Industrial Revolution
• Statistical methods
• Management information systems

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Accounting is

• A language of business
• Process of analyzing, classifying, recording,
  summarizing, and interpreting business
  transactions.
• Reporting the position of a company.
• Record keeping.
• Our Book Measure the economic activity of a
  business

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Accounting is

• Guided by the Financial Accounting Standards
  Board (FASB) , who is governed by the Securities
  and Exchange Commission (SEC), through
  pronouncements of Generally Accepted Accounting
  Principals (GAAP)

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Users of Accounting Information

• Owners
• All Businesses
• Sole Proprietorships
• Partnerships
• Uniform Partnership Act
• Limited Liability Partnership (LLP)
• Corporations
• C- Corp
• S- Corp
• Limited Liability Corporation (LLC)
• Non-profit Corporation
• (Not legal business entities. Separate Entity
  Theory)
• Managers
• Creditors
• Government Agencies

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Reporting Information to Users

• Information reported to others through the
  financial statements
• Balance Sheet assets, liabilities, and capital
• Income Statement revenues and expenses
• Statement of Owners Equity
• Statement of Cash Flows

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Preparation of Financials

• Prepare at the end of the accounting period
• monthly, quarterly, yearly
• Order of Financial Statements
• Income Statement (for a period of time)
• Net Income or Net Loss
• Statement of Owners Equity (for a period of
  time)
• Updating capital from Income Statement
• Balance Sheet (for a specific date)
• New position of the Company (updated balances)

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Careers in Accounting

• Certified Public Accountant (CPA)
• CPA Exam
• 14 hour exam
• New computerized Exam
• 4 parts
• Auditing and Attestation 4.5 hours
• Regulation 3 hours
• Financial Accounting Reporting 4 hours
• Business Environment and Concepts 2.5 hours
• Experience Requirements
• Certification differs in each state
• More Info www.cpa-exam.org

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Fundamental Accounting Equation

• Assets Liabilities Owners Equity
• Assets
• Things of value or property owned by an economic
  entity
• Items of future service benefit
• Liabilities
• Amounts owed to creditors
• Debts or obligations
• Capital (Owners Equity)
• Owners claim, investment, net worth
• Whats left over

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Chart of Accounts

• Assets
• Current Assets benefit current period
• Examples cash, accounts receivable, supplies,
  prepaid insurance, inventory
• Long term Assets Benefit gt current period
• Examples equipment, land, patents, goodwill
• Listed in order of liquidity on Balance Sheet
• Liabilities
• Current Liabilities benefit current period
• Examples accounts payable, salaries payable,
  unearned revenue
• Listed in order of urgency to pay

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Chart of Accounts

• Capital
• Examples
• Sole Proprietorship or Partnership
• Name, capital
• Name, draw
• Corporation
• Common stock
• Retained earnings
• Preferred stock

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Chart of Accounts

• Revenue (increase in owners equity)
• Amount of assets that a business gains (earns)
  from its operations income
• Examples
• Income from services
• Sales Revenue
• Expenses (decrease in owners equity)
• Amounts of assets that a business uses up as a
  result of its operations.
• Examples
• Wages expense
• Rent expense
• Advertising expense
• Utilities expense

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Recording Business Transactions

• Every transaction is recorded as increases and/or
  decreases in two or more accounts double entry
  accounting
• One side of the equation is always equal to the
  other side of the equation
• Assets Liabilities Owners Equity

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Debits and Credits

• The left side of the t account is called the
  debit side
• The right side of the t account is called the
  credit side
• Critical Rule the amount placed on the debit
  side of one or more accounts must equal the
  amount placed on the credit side of another
  account or accounts