Basics of Accounting Part 2

1
Basics of AccountingPart 2
2
Accrual Basis

• Required under GAAP
• Must be used if you are a publicly traded company
• Most corporations also use this
• Record all purchases, expenses and revenues when
  they are earned

3
Cash Basis

• Most small companies use this for their
  accounting system
• Record every purchase and receipt when the money
  is received, NOT when it is earned
• Much simpler to track recording of revenues and
  expenses

4
Taxes

• Government requires everything to be converted to
  cash for tax purposes
• Thats why so many companies use it in the first
  place
• For Sole Proprietorships, use Schedule C and the
  income passes through to you individual tax return

5
Recording Transactions
6
Initial Investment

• Invested 20,000 dollars into the business from
  savings
• What accounts are affected?
• Cash 20,000
• Owners Equity 20,000

7
Get a Bank Loan

• Received a 50,000 mortgage from the local bank
• What accounts are affected?
• Cash 50,000
• Note(Mortgage) Payable 50,000

8
Buy Equipment with a Loan

• Bought a company car for 15,000
• What accounts are affected?
• Equipment 15,000
• Note Payable 15,000

9
Buy Supplies

• Buy Office Supplies with 500 Cash
• Office supplies 500
• Cash 500

10
Buy Inventory on account

• Bought 10,000 in merchandise from a supplier to
  be paid in 2 weeks
• Inventory 10,000
• Accounts Payable 10,000

11
Pay for supplies

• Paid supplier for inventory bought 2 weeks ago
• Accounts Payable 10,000
• Cash 10,000

12
Summary

• Everything has to have a debit and credit
• Accounting Equation always has to remain in
  balance