Introduction to Accounting
8th grade
Mrs. Stovall
What is accounting?
• The system of recording and summarizing
financial transactions and analyzing, verifying,
and reporting the results
• http://www.merrianwebster.com/dictionary/accounting
Who uses accounting?
• Everyone!
• Businesses use accounting information to run the business
• Investors use it to make decisions about whether to buy a
company’s stocks
• Creditors use it to make decisions about whether to loan
money to a company
• IRS use it to determine how much taxes the company must
pay
• Customers use the information to determine which
company to purchase products or services from (you want
a company that is going to be around in the future)
Key Terms
• Assets – things you own
• Liabilities – a debt or obligation (money
owed)
• Owner’s Equity – the amount of the initial
investment plus retained earnings (savings).
• Income – a monetary gain (usually from the
sale of products or service)
• Expenses – financial burdens; cost
Debits and Credits
Analyzing and Recording
Business Transactions
Setting up and organizing
a chart of accounts.
Business Transactions
1 Owner invests cash in a business.
2 Owner buys business assets.
3 Services are performed and cash received.
4 Services are performed and billed to
customers as accounts receivable.
5 Business expenses are incurred and paid for
with cash or paid for later.
Documenting Business Transactions
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Analyze events (transactions)
Decide which accounts are affected.
Choose the account category.
Determine whether the event will cause an
increase or decrease to the account.
• Record the transaction with proper debits and
credits.
Debits and Credits
• Every transaction must be recorded.
• Every transaction must affect at least two
accounts.
• Debits must equal credits.
• The accounting equation must be in
balance.
T-accounts
• A T account is a format used to show the
effect of transactions.
• Dollar signs ($) are not used in accounts.
T account
Left
Right
Debit Credit
The Ledger Account
• Account: Cash
Balance
Date
Debit
June 1
5,000
Credit
Debit
5,000
credit
Debits and Credits
What is the definition of debit?
• The left side of any T account.
• A number entered on the left side of any
account is said to be debited to an account.
What is the definition of credit?
• The right side of any T account.
• A number entered on the right side of any
account is said to be credited to an account.
Debits and Credits
___________Account Name (Title)___
Left side/Dr. (debit)
__________Account Name (Title)____
Right side/Cr. (credit)
Financial Statements
• Balance Sheet – An official financial statement
that includes the company’s assets and liabilities.
It determine the value of the company by
subtracting liabilities from assets.
• Income Statement – A financial statement of a
company’s operation. Shows a company’s
income, expenses, and income for a period of
time. Shows the company’s profit or loss for a
given period of time. Amount earned or lost over
a period of time.
Formulas
• Assets = Liabilities + Owner Equity
• Income-Expenses = Net Income or Net
Loss
• Total Income = Sales & Interest Income
• Total Expenses = all expenses
• Money In – Money Out = Money
remaining (savings, future expenses)
BCSIII- Accounting Unit
Essential Questions
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What are debits? Credits?
What are the basic account types?
What is an Income Statement?
What is a Balance Sheet?