INTRODUCTION TO ACCOUNTING
ACNT 1303
Lecture Notes
GENERAL INFORMATION FOR COMPLETING THE CLASS
The following is a summary of the twelve chapters that you will be completing this semester. Be sure that
you are taking the time to read and STUDY each chapter. It is important to go through each of the
examples in the book and to complete the Review Quiz. Spending time reading and understanding before
you start the homework assignment will help you to complete in the exercises and case problems with
more understanding. Please ask questions to clarify questions that you may have on any assignment or
concept. Be sure to check your answers in the notebooks before turning in your assignments. There are
PowerPoint slides on the “I” drive that you may want to review before taking your exams or as
reinforcement to your reading.
Chapter 1
The Nature of Accounting
Accounting is the process of recording, summarizing, analyzing, and interpreting financial (money-
related) activities to permit individuals and organizations to make informed judgments and decisions.
By law all businesses must keep accounting records. Decisions are based on accounting information for
profit and non-profit companies alike.
There are different forms of business organizations:
o Private business—object is to earn a profit
o Sole Proprietorship—owned by one person
o Partnership—co-owned by two or more persons
o Corporation—owned by investors called stockholders (The business—not the owners—are
responsible for the company’s obligations.)
There are different types of business organizations:
•
•
Service business—doctors, lawyers, barber shop, etc.
•
Merchandising business—purchases goods for resale
Manufacturing business—produces a product to sell
THE ELEMENTS OF ACCOUNTING
ASSETS
Assets are items with money value that are owned by a business. Some examples are: cash, accounts
receivable (selling goods or services on credit), equipment (office, store, delivery, etc.), and supplies
(office, store, delivery, etc.).
LIABILITIES
Liabilities are debts owed by the business. Paying cash is often not possible or convenient, so businesses
purchase goods and services on credit. The name of the account used is Accounts Payable.
Another type of liability is Notes Payable. This is a formal written promise to pay a specific amount of
money at a definite future date.
OWNER’S EQUITY
The difference between Assets and Liabilities is Owner’s Equity. The can also be called capital,
proprietorship, or net worth.
Introduction to Accounting I Lecture Notes Page 1 of 20
,THE ACCOUNTING EQUATION (Study the examples in the book, p. 5)
Assets = Liabilities + Owner’s Equity
This equation must always balance!
BUSINESS TRANSACTIONS AND THE ACCOUNTING EQUATION
A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s equity.
Each transaction has a dual effect on the basic accounting elements. A transaction may affect more than
two accounts in a transaction. This is called a combined entry.
Withdrawal (Drawing) is the removal of business assets for personal use by the owner. This transaction
decreases the asset taken and the value of the business.
Each transaction increases or decreases (or both) the basic elements in the accounting equation.
The effect of recording a business transaction must always leave the two sides of the accounting equation
in balance.
To understand how a transaction affects the accounting equation, go through each of the examples in the
textbook. Be sure to pay attention to the “Notes” and “Cautions” that are given.
FINANCIAL STATEMENTS
Summaries of financial activities are called financial statements which are prepared on a regular
basis at the end of an accounting period. The accounting period typically is one year; however, it can be
any length of time for which records are maintained. Usually the minimum is one month and the
maximum length of time is one year for financial statements.
There are several financial statements. You are going to prepare the Income Statement, Statement of
Owner’s Equity, and Balance Sheet. These must be completed in that order. Notice the page in your
book that shows the three statements and how the information goes from one source to another. It is very
important to always check your numbers since an incorrect number will affect more than one statement.
Income Statement. This is a summary of a business’s revenue and expenses for a specific period of time.
It ONLY shows revenue and expenses. These should be listed in order from largest to smallest. (This
should be done in this chapter because accounts are not given account numbers.)
Net Income is realized when revenue exceeds expenses.
Net loss is realized when expenses exceed revenue.
Statement of Owner’s Equity. This is a summary of the changes that have occurred in the owner’s
equity during a specific period of time.
This statement will show either an increase or decrease in the capital account.
Balance Sheet. This statement is a listing of the firm’s assets, liabilities, and owner’s equity at a specific
point in time. Total Assets must equal the addition of Liabilities and Owner’s Equity.
NOTE: Be sure that you are looking carefully at the examples given in the book when completing your
assignments. You must write legibly and use a ruler to draw the lines. Notice that there are double rules to
show that items have balanced. Be sure to read and study the Summary and Key Terms at the end of each
chapter.
Chapter 2
Recording Business Transactions
NOTE: It is important that you read the chapter and work through the problems and examples as given in
the text. Reading, doing, and checking your answers will allow you to understand. Read each transaction
given and see which accounts are affected. There will always be at least two. I am going to summarize the
Introduction to Accounting I Lecture Notes Page 2 of 20
, chapter, but you need to spend quality time going through the exercises in order to apply the information
to your assignment homework.
ACCOUNT. An account is an individual record or form to record and summarize information for each
asset, liability, or owner’s equity transaction.
Each account will have a title and number.
Debit means left side.
Credit means right side.
A “T” ACCOUNT is so named because it looks like a capital T. Use this form of an account to help you
determine whether the amount is placed on the left (debit) or right (credit) side of the account.
It is important that you think of debits and credits as only meaning left and right!
Double-entry accounting means that there will be at least two (2) accounts affected by each transaction.
Debits and Credits can either be increases or decreases depending on the type of account. See chart on
page 40.
DEBITS MUST ALWAYS EQUAL CREDITS!
Look at the example on page 42 to help you understand the Temporary Owner’s Equity accounts. All
transactions that affect owner’s equity could be recorded in one account, but it would be hard to
determine profit and loss and would not be very practical. By putting expenses and drawing in separate,
temporary debit accounts, and revenue and owner investments in separate, temporary credit accounts, it is
easier to make decisions. These decisions can be easily obtained from these temporary accounts. At the
end of the accounting period these temporary accounts are “closed” into the capital account. They are
only temporary—used during the current accounting period. Each accounting period would have these
accounts starting with a zero balance.
Increases in Owner’s Equity are investments and revenue.
Decreases in Owner’s Equity are withdrawals and expenses.
Rules for Owner’s Equity Accounts. See page 43 and following based on the relationship to Owner’s
equity.
Drawing. This account increases on the Debit side (decreases capital). Usually an asset is removed—
cash, supplies, equipment, etc.
Expenses. These accounts decrease owner’s equity on the Debit side. Expenses are a debt and decrease
capital.
TRIAL BALANCE
This statement is a listing on a certain date that shows all accounts and their balances. This usually occurs
at the end of the month, but it could be any time.
This is not a formal financial statement. See the sample on page 49. Because it is not a formal statement,
no dollar signs are needed.
* Even though the debits and credits equal, there could still be errors. Check carefully to see that you have
used the correct amounts.
For each account you must find a balance. This is called Footing. For each account, add the debits
together, and then add the credits. Subtract the two amounts and list the difference on the same line and
side as the balance. Use a pencil (pencil footings). Be sure to look carefully at the examples in your book.
The Normal Balance of Accounts
An account normally has more increases than decreases, so usually the balance is on the normal balance
side of the account.
Introduction to Accounting I Lecture Notes Page 3 of 20
ACNT 1303
Lecture Notes
GENERAL INFORMATION FOR COMPLETING THE CLASS
The following is a summary of the twelve chapters that you will be completing this semester. Be sure that
you are taking the time to read and STUDY each chapter. It is important to go through each of the
examples in the book and to complete the Review Quiz. Spending time reading and understanding before
you start the homework assignment will help you to complete in the exercises and case problems with
more understanding. Please ask questions to clarify questions that you may have on any assignment or
concept. Be sure to check your answers in the notebooks before turning in your assignments. There are
PowerPoint slides on the “I” drive that you may want to review before taking your exams or as
reinforcement to your reading.
Chapter 1
The Nature of Accounting
Accounting is the process of recording, summarizing, analyzing, and interpreting financial (money-
related) activities to permit individuals and organizations to make informed judgments and decisions.
By law all businesses must keep accounting records. Decisions are based on accounting information for
profit and non-profit companies alike.
There are different forms of business organizations:
o Private business—object is to earn a profit
o Sole Proprietorship—owned by one person
o Partnership—co-owned by two or more persons
o Corporation—owned by investors called stockholders (The business—not the owners—are
responsible for the company’s obligations.)
There are different types of business organizations:
•
•
Service business—doctors, lawyers, barber shop, etc.
•
Merchandising business—purchases goods for resale
Manufacturing business—produces a product to sell
THE ELEMENTS OF ACCOUNTING
ASSETS
Assets are items with money value that are owned by a business. Some examples are: cash, accounts
receivable (selling goods or services on credit), equipment (office, store, delivery, etc.), and supplies
(office, store, delivery, etc.).
LIABILITIES
Liabilities are debts owed by the business. Paying cash is often not possible or convenient, so businesses
purchase goods and services on credit. The name of the account used is Accounts Payable.
Another type of liability is Notes Payable. This is a formal written promise to pay a specific amount of
money at a definite future date.
OWNER’S EQUITY
The difference between Assets and Liabilities is Owner’s Equity. The can also be called capital,
proprietorship, or net worth.
Introduction to Accounting I Lecture Notes Page 1 of 20
,THE ACCOUNTING EQUATION (Study the examples in the book, p. 5)
Assets = Liabilities + Owner’s Equity
This equation must always balance!
BUSINESS TRANSACTIONS AND THE ACCOUNTING EQUATION
A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s equity.
Each transaction has a dual effect on the basic accounting elements. A transaction may affect more than
two accounts in a transaction. This is called a combined entry.
Withdrawal (Drawing) is the removal of business assets for personal use by the owner. This transaction
decreases the asset taken and the value of the business.
Each transaction increases or decreases (or both) the basic elements in the accounting equation.
The effect of recording a business transaction must always leave the two sides of the accounting equation
in balance.
To understand how a transaction affects the accounting equation, go through each of the examples in the
textbook. Be sure to pay attention to the “Notes” and “Cautions” that are given.
FINANCIAL STATEMENTS
Summaries of financial activities are called financial statements which are prepared on a regular
basis at the end of an accounting period. The accounting period typically is one year; however, it can be
any length of time for which records are maintained. Usually the minimum is one month and the
maximum length of time is one year for financial statements.
There are several financial statements. You are going to prepare the Income Statement, Statement of
Owner’s Equity, and Balance Sheet. These must be completed in that order. Notice the page in your
book that shows the three statements and how the information goes from one source to another. It is very
important to always check your numbers since an incorrect number will affect more than one statement.
Income Statement. This is a summary of a business’s revenue and expenses for a specific period of time.
It ONLY shows revenue and expenses. These should be listed in order from largest to smallest. (This
should be done in this chapter because accounts are not given account numbers.)
Net Income is realized when revenue exceeds expenses.
Net loss is realized when expenses exceed revenue.
Statement of Owner’s Equity. This is a summary of the changes that have occurred in the owner’s
equity during a specific period of time.
This statement will show either an increase or decrease in the capital account.
Balance Sheet. This statement is a listing of the firm’s assets, liabilities, and owner’s equity at a specific
point in time. Total Assets must equal the addition of Liabilities and Owner’s Equity.
NOTE: Be sure that you are looking carefully at the examples given in the book when completing your
assignments. You must write legibly and use a ruler to draw the lines. Notice that there are double rules to
show that items have balanced. Be sure to read and study the Summary and Key Terms at the end of each
chapter.
Chapter 2
Recording Business Transactions
NOTE: It is important that you read the chapter and work through the problems and examples as given in
the text. Reading, doing, and checking your answers will allow you to understand. Read each transaction
given and see which accounts are affected. There will always be at least two. I am going to summarize the
Introduction to Accounting I Lecture Notes Page 2 of 20
, chapter, but you need to spend quality time going through the exercises in order to apply the information
to your assignment homework.
ACCOUNT. An account is an individual record or form to record and summarize information for each
asset, liability, or owner’s equity transaction.
Each account will have a title and number.
Debit means left side.
Credit means right side.
A “T” ACCOUNT is so named because it looks like a capital T. Use this form of an account to help you
determine whether the amount is placed on the left (debit) or right (credit) side of the account.
It is important that you think of debits and credits as only meaning left and right!
Double-entry accounting means that there will be at least two (2) accounts affected by each transaction.
Debits and Credits can either be increases or decreases depending on the type of account. See chart on
page 40.
DEBITS MUST ALWAYS EQUAL CREDITS!
Look at the example on page 42 to help you understand the Temporary Owner’s Equity accounts. All
transactions that affect owner’s equity could be recorded in one account, but it would be hard to
determine profit and loss and would not be very practical. By putting expenses and drawing in separate,
temporary debit accounts, and revenue and owner investments in separate, temporary credit accounts, it is
easier to make decisions. These decisions can be easily obtained from these temporary accounts. At the
end of the accounting period these temporary accounts are “closed” into the capital account. They are
only temporary—used during the current accounting period. Each accounting period would have these
accounts starting with a zero balance.
Increases in Owner’s Equity are investments and revenue.
Decreases in Owner’s Equity are withdrawals and expenses.
Rules for Owner’s Equity Accounts. See page 43 and following based on the relationship to Owner’s
equity.
Drawing. This account increases on the Debit side (decreases capital). Usually an asset is removed—
cash, supplies, equipment, etc.
Expenses. These accounts decrease owner’s equity on the Debit side. Expenses are a debt and decrease
capital.
TRIAL BALANCE
This statement is a listing on a certain date that shows all accounts and their balances. This usually occurs
at the end of the month, but it could be any time.
This is not a formal financial statement. See the sample on page 49. Because it is not a formal statement,
no dollar signs are needed.
* Even though the debits and credits equal, there could still be errors. Check carefully to see that you have
used the correct amounts.
For each account you must find a balance. This is called Footing. For each account, add the debits
together, and then add the credits. Subtract the two amounts and list the difference on the same line and
side as the balance. Use a pencil (pencil footings). Be sure to look carefully at the examples in your book.
The Normal Balance of Accounts
An account normally has more increases than decreases, so usually the balance is on the normal balance
side of the account.
Introduction to Accounting I Lecture Notes Page 3 of 20
