Terminology
Financial
Statements
GAAP
Transactions
Other
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BUSINESS
TRANSACTION
A financial event
that affects assets,
liabilities or owners
equity
An asset representing
amounts due from
customers
ACCOUNTS
RECEIVABLE
Costs incurred by a
business in earning
revenue
EXPENSES
Owner withdrawing
money for personal use
DRAWINGS
The fees a business
charges for buying or
selling goods (ex: real
estate, for clients)
COMMISSIONS
The two financial
statements are
called…
INCOME
STATEMENT
&
BALANCE
SHEET
The financial
statement that is
completed first
INCOME
STATEMENT
Advertising
Expense can be
found on the ..
INCOME
STATEMENT
What 3 questions does
the heading of an
Income Statement ask
WHO?
WHAT?
WHEN?
What does the income statement
tell the reader?
HOW MUCH THE
BUSINESS MADE OR LOST
OVER A REPORTED
PERIOD OF TIME
Revenue should be
recognized at the
time of sale and/or
rendering services
GAAP
REVENUE
PRINCIPLE
Expenses must be
recognized and
recorded when
they are incurred
GAAP
EXPENSES
PRINCIPLE
Revenues &
expenses must be
correlated to report
net income/net loss
for an accounting
period
GAAP
MATCHING
PRINCIPLE
One aspect of
accounting theory that
views the business as
being separate,
distinct, and apart
from its owners
GAAP
ENTITY
CONCEPT
DAILY DOUBLE
DAILY DOUBLE
Taylor’s Catering Co. Advertised on the local
radio station, Country 100. They received the
radio station’s monthly invoice on March 29,
2009. The invoice indicated that payment was
due by the 15th of the following month.
1. What GAAP underlies this transaction?
2. What is the key date in this transaction? Why
is this date regarded as key?
3. Record the elements that are affected,
whether they increase or decrease the
accounting equation and explain why?
1.
Expense Principle
2.
March 29, 2009 – b/c the expense is
recognized when the expense is incurred, not
when the cash is paid out.
3.
The elements affected are liabilities (increase)
and owner’s equity (decrease – new expense).
Two accounts – accounts payable and
advertising expense
Salaries,
Heat,
Phone,
Cell Phone,
Adverstising
EXPENSES
Received $280 on
account from a client
-What accounts are
affected?
-Increase or
decrease?
ACC. REC. decreases
by 280
CASH increases by 280
Paid $1500 on account
Accounts?
Increase or Decrease?
Acc. Pay. Decreases
by $1500
Cash Decreases by
$1500
When a computer is purchased
for cash, what side of the
account is affected?
LEFT SIDE
ASSETS
The new info added to
the OE section of the
balance sheet in this
chapter ...
- REVENUE AND
EXPENSES (NET
INCOME OR NET
LOSS)
- DRAWINGS
Create the OE section of the
balance sheet based on the
following information:
Drawings $1200
Capital $10 000
Net Income $ 8 000
Owner’s Equity
Lapointe, Capital $10 000
Add: Net Income
8 000
18 000
Less: Drawings
1 200
Total Owner’s Equity
$16 800
What is the difference
between sales and fees
earned?
SALES – SELLING
GOODS
FEES EARNED –
SERVICE BASED
BUSINESS
When an asset is bought on
credit, liabilities...
INCREASE
Sold services to a
customer on credit.
A = L + OE
Accounts? Increase?
Decrease?
Fees Earned – Increase
Acc. Rec. - Increase
Paid cash for rent
expense.
Accounts? Increase?
Decrease?
CASH –
DECREASES
RENT EXPENSE –
IS SUBTRACTED
FROM REVENUE


As a team create an income statement and
balance sheet based on the information on the
next slide.
You must create it as a group and submit one
copy of each sheet. The same person cannot
write both.
Lapointe’s Teaching Service (Aug. 31,
2009)
 Fees Earned: 10 000, Rent Expense: 2000,
Advertising Expense: 1000, Telephone
Expense: 500- IS – for the month
 Cash: 10 000, Car: 7000, Equipment:
2000, Bank Loan Pay: 6000, Acc.Pay. Joe:
200, Acc.Pay. John: 800, Drawings: 1000,
Capital 6500

-
Income Statement
- Balance Sheet
Return back to your original
seat
 Hand out study guide
 Ch. Problems and Questions
due the day of exam
 Practice Test and Quizzes Due
