Basic Accounting

• Assets are anything the business owns that has a dollar value
(debit balance on the “T-accounts”)
• Liabilities are debts the business owes to individuals, businesses, or other organizations business (credit balance on the “T-accounts”)
• Owner’s Equity is the difference between the total assets and the total liabilities of a business (credit balance on the “Taccounts”)
• The fundament accounting equations is:
• ASSETS= LIABILITIES + OWNER’S EQUTIY(O.E)
• So everything the business owns should be /must be /is equal to the debts of the business plus the difference of total assets and total liabilities  asset= 100 liabilities=40 so.. O.E = 100-40=60
• And assets = 40+60=100

Dr
Assets (Debit)
Cr
Dr
Liabilities (Credit)
Cr
Dr
O.E (Credit)
Cr

 A statement that shows that financial position of a business on certain date
 The balance sheet is set up in the form of the fundamental accounting equation
 Both sides balance
 A financial statement that summarizes the items of revenue and expense and shows the net income or net loss of a business for a given fiscal period
 Shows the profitability of a business
 can be used as a comparison between other income statements to show where the business can improve

 Accounts Payable: The money that a business owes to its creditors  the money is a liability of the business
 Accounts Receivable: the money that is owed to the business by its customers  the money is an asset of the business
 Business Entity Concept
 Cost Principle
 Principle of Conservatism
 Continuing Concern Concept
 Objective Principle
 Revenue Recognition Principle
 Time Period Concept
 The Matching Principle
 Revaluating Cost Principle

 A compulsory contribution to the government used to pay for essential services

 An estimate of income and expenditure
 Helps save money
 Helps plan for future
 Control impulsive spending
 Helps make money
 Keep track of income
 Make list of essential expenses
 Save or invest remaining money

 A practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium
 Health insurance
 Car insurance
 Life insurance
 Home insurance
 Pay small monthly fees

Health, Eye, and Dental
Insurance
Discounts
Employee
Stock
Purchase Plan
Fringe
Benefits
RRSP
Fringe Benefits: an extra supplementary benefit additional to an employee’s salary
Health, Eye and Dental Care: Partial or full coverage of medical expenses not covered by
OHIP
Discounts: Employee discounts (either % or set amount)
Employee stock purchase plan: employees given an option to obtain company stocks for free
RRSP: companies contribute to a employee’s personal RRSP

 Money taken out of you pay-cheque for various reasons
 For What:
 CPP
 Employment insurance
 Income Tax
 Voluntary Deductions
CPP: Canadian Pension Plan; mandatory contribution to your retirement fund
Employment Insurance: mandatory deduction for the protection of employee in the case of an accident
Income Tax: a mandatory deduction on what you earn
Voluntary Deductions: Donations and Personal RRSP

Credit Bureau: a company which collects information relating to credit ratings of individuals and makes it available to credit card companies, financial institutions
Credit card: a card issued by a financial institution allowing the holder to make purchases which you do not have funds for at the time of purchase
• Allows a credit rating to be built
Debit Card: a card issued by a financial institution allowing the holder to transfer funds to another bank account while making a purchase (with their own money)
• Include examples (master, visa, american express)

• Loan: a sum of money borrowed from a financial institution for a certain period of time, expected to be paid back with interest upon the principal amount.
• Mortgage: a long term loan taken to pay for real estate property.
• Average is 25 years
• Installments are paid monthly
• Bank performs background checks before confirming the mortgage
• Financial Documents
• Before a loan is issued, background checks on clients is performs
• Used to test reliability
• “Credit rating” is considered
• Interest
• A proportionate fee paid on top of the borrowed sum upon returning for the service offered
• Controlled by bank of Canada (keeping in mind the economic state of the nation)

• Saving Account: a storage for money where the amount earns interest (accumulated over time)
• Earns very little interest
• Not used to withdraw funds on a daily basis
• Chequing Account: An account used to access funds on a regular basis
• Used to sign checks
• Does not earn interest

Banking: The business conducted or services offered by a bank
• Process of managing personal finances
• Overdraft protection: an agreement made with the bank
(financial institution) that allows you to spend more than the value in the account at the time.
• Certified Check: a check for which the bank takes the funds out of the payer’s account in advance and puts them aside to honour the check when it is presented by the payee
• NSF (non sufficient funds check): a check that cannot be honoured because there is not enough money in the issuer’s bank account.