This course is designed to provide an overview of accounting.
Duration of the course: 00:30:00
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Slide 4 Course Outline
There are multiple sections within the course. Each section covers a different aspect of accounting. Together they tell a story that will help you understand why accounting is important to the success of a small business.
Slide 5 Course Outline
You will notice a button in the top right section of each slide that says Course Outline. Clicking on that button will bring you to this page – which will give you quick access to any section of the course.
Let’s get started………
Slide 6 What is accounting?
The first thing we need to do is define what accounting is.
Accounting is the language of business. It is how a business “keeps score.” It tells whether a business is profitable or not. In terms of a formal definition, it’s the art of recording, classifying, and summarizing the financial events of a business.
Slide 7 Why is it important?
Accounting is called the "language of business" because it deals with interpreting and communicating information about a company's operations and finances.
Accounting is extremely important to any company because the financial information allows entrepreneurs to make informed business decisions. Economic events are measured and described by financial processes. We all work with and use accounting principals, whether we are managing a business, investing money, or just deciding how to spend our paycheck.
Slide 8 Why is it important?
It’s easy to just say, “I’m a craftsperson and I know my craft and that’s all I need to know. I’ll just hire someone to take care of the numbers for me.”
The bottom line is this: Whoever is making the decisions for the business needs to understand the basics of accounting and what each of the financial reporting statements mean.
If you are going to let the person taking care of your numbers make all of the decisions then you’ll be fine.
But let’s face it. You are most likely the one who’s going to make many of the critical decisions facing the
business. This is probably why you got into business in the first place—to call the shots.
Therefore, you need to at least understand the numbers even if you let someone else keep the books for you.
Slide 9 Keeping Accurate Books
Here's a few reasons why you have to keep accurate books, and you'll notice that tax reporting is at the bottom of the list. Keeping accurate books will help you: Price your products accurately.
Know if you're making or losing money—in general and on specific jobs.
Know your cash flow – both in the short and long term. Work with bankers and investors.
Let the tax agencies know how you're doing.
Slide 10 General Ledger
A business usually uses a general ledger to organize all of its accounting transactions so they can be easily found and understood. A general ledger is a moment by moment record of everything that happens in the business.
Today, and this is important, most small businesses use an automated financial software package that runs on a computer to keep track of their general ledger.
Slide 11 Double Entry Accounting
There are two different entry accounting systems.
They are the double entry accounting system and the single entry accounting system. A double entry system is when you make a transaction entry to one side and then make a second entry to the other side of the general ledger, scorecard or financial statement. This helps to keep it equal or balanced.
A single entry accounting system is typically associated with using an automated accounting system enabled by a computer. After entering the first entry, the computer program will make the second entry for you. You will still need to remember the double entry system so you will know what is going on behind the scenes.
Slide 12 Money Flows
When you think about it, there are really only a few different ways that money flows through a business. There is money coming in, money going out, money owed to the business, and money the business or you owe to others.
Let’s take a look at each of these scenarios.
Slide 13 Money Coming In
There are several ways in which money can come into your business:
You can sell products or services, Receive money from the proceeds of a loan, or Receive money from a new investor or current owner.
Slide 14 Money Going Out
Money can exit a business in the following ways:
Purchase assets such as equipment or inventory, Pay expenses incurred from being in business, Make payments to satisfy a loan or liability, or distribute some of the business earnings to the owners.
Slide 15 Money Owed To The Business
In certain instances you may decide to offer “credit” to your customers.
Basically, this means that the customer receives your product or service now but agrees to pay you at a later date.
Why would you do such a thing? One reason is simple: giving your customer flexibility in making payments can increase the sale of your products and services. It’s as simple as that.
Certain kinds of customers such as businesses usually request such payment terms to help them balance the flow of money coming into and going out of their businesses.
Slide 16 Money The Business Owes
In certain instances, you might be able to purchase merchandise from your supplier on account, also called on credit.
Buying and receiving products or services which are to be paid at a later date is called “accounts payable.” Such accounts represent money you owe to someone else. Therefore, these amounts will appear on the right side of your scorecard.
Slide 17 The Balance Sheet
The Balance Sheet is a snapshot of your business.
It outlines the financial condition of your business at a specific point in time.
The balance sheet provides a financial perspective, highlighting the stuff you have and who owns it. Let’s take a look at this, broken-down in simple terms.
Slide 18 Simplified Terms
To better understand how money moves in and out of your business, you need a scorecard or financial statement that shows two things: STUFF YOU HAVE and WHO OWNS IT.
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