Accounting for Entrepreneurs


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Accounting for Entrepreneurs.
Presented by: Ms. Rand Marar, GOL Trainer
Socialize your Business, Maadi Public Library, Cairo, Egypt.
Organized by IRC, US-Embassy in Cairo
26 March, 2013

Published in: Economy & Finance
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  • Giving and receiving concept.
  • Accounting for Entrepreneurs

    1. 1. Accounting forEntrepreneurs By: Ms. Rand Marar
    2. 2. What is Accounting? "The process of identifying, measuring and communicating economic information to permitinformed judgments and decisions by users of the information.” - The American Accounting Association. -
    3. 3. Four Fields of Accounting• Financial Accounting.• Management Accounting.• Auditing.• Tax Accounting.
    4. 4. Why do we need Accounting?1. Financial health.2. Financial planning.3. Budgeting.4. Calculating tax liability.5. Financial reporting.6. Need for financing.
    5. 5. The Elements of Accounting AssetsItems with money value that are owned by a business and items that generate future benefits and repayments. Ex. Cash, Building, Office Supplies, Accounts Receivables…etc.
    6. 6. The Elements of Accounting (Cont’d) LiabilitiesLiabilities are debts owed by the business and items that represent economic future sacrifices. Ex. Loans, Accounts Payable…etc.
    7. 7. The Elements of Accounting (Cont’d) Owner’s Equity Capital, proprietorship, or net worth
    8. 8. The Accounting Equation! Owner’sAssets = Liabilities + EquityThis equation must always balance!
    9. 9. The Accounting Cycle: Definitions• Transaction: A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s equity• Account: is an individual record or form to record and summarize information for each asset, liability, or owner’s equity transaction.• Double-entry accounting: means that there will be at least two (2) accounts affected by each transaction.
    10. 10. The Accounting Cycle Definitions:• Journal: diary of information of day-to-day transactions.• Ledger: individual accounts that help summarize activity and obtain balances of accounts.• Trial Balance: a statement 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.
    11. 11. The Accounting Cycle1. Analyze transactions. (Debit or Credit)2. Record in a journal.(Record)3. Post from the journal to the ledger.(Summarize)4. Prepare an unadjusted trial balance.5. Record adjusting entries.6. Prepare adjusted trial balance.7. Prepare Financial Statements.
    12. 12. Analyze Transactions Involves taking a decision on whether a particular business event has an economiceffect on the assets, liabilities or equity of the business. It also involves ascertaining the magnitude of the transaction.
    13. 13. Analyzing Transactions• Assets and Expenses An increase is recorded as debit (left side) A decrease is recorded as credit (right side)• Liabilities, Equities and Revenues A decrease is recorded as debit (left side) An increase is recorded as credit (right side)
    14. 14. Practical Example• The owner brings cash from his personal account into the business Analysis: Cash (an asset) is increased thus debit Cash Owner capital (an equity) is increased thus credit Owners Capital• Office supplies are purchased on account Analysis: Office Supplies (an asset) is increased thus debit Office Supplies Accounts Payable (a liability) is increased thus credit Accounts Payable• Wages payable are paid Analysis: Wages Payable (a liability) is decreased thus debit Wages Payable Cash (an asset) is decreased thus credit Cash• Revenue is earned but not yet received Analysis: Accounts Receivable (an asset) is increased thus debit Accounts Receivable Revenue (a revenue) is increased thus credit Revenue
    15. 15. Recording Transactions in Journal Entries (practical example)
    16. 16. Recording Transactions in Journal Entries (practical example)
    17. 17. Posting from Journal to Ledger
    18. 18. Posting from Journal to Ledger
    19. 19. Posting from Journal to Ledger
    20. 20. Prepare Unadjusted Trial Balance
    21. 21. Record Adjusting Entries• Accruals: These include revenues not yet received nor recorded and expenses not yet paid nor recorded. For example, interest expense on loan accrued in the current period but not yet paid.• Prepayments: These are revenues received in advance and recorded as liabilities, to be recorded as revenue and expenses paid in advance and recorded as assets, to be recorded as expense. For example, adjustments to unearned revenue, prepaid insurance, office supplies, prepaid rent, etc.• Non-cash: These adjusting entries record non-cash items such as depreciation expense, allowance for doubtful debts etc.
    22. 22. Record Adjusting Entries
    23. 23. Prepare Adjusted Trial Balance
    24. 24. Financial Statements1. Income Statement (contains only revenue and expenses and shows net gain or loss)2. Statement of Retained Earnings(summarizes the changes during the accounting period)3. Balance Sheet (lists a firm’s assets, liabilities, and owner’s equity).
    25. 25. Income Statement
    26. 26. Statement of Retained Earnings
    27. 27. Balance Sheet
    28. 28. Users and Their Information Needs1. Investors2. Employees3. Lenders4. Suppliers and other trade creditors5. Customers6. Governments and their agencies7. Public
    29. 29. Advantages & Limitations of Financial Ratios
    30. 30. Advantages1. It simplifies the financial statements.2. It helps in comparing companies of different size with each other.3. It helps in trend analysis which involves comparing a single company over a period.4. It highlights important information in simple form quickly. A user can judge a company by just looking at few numbers instead of reading the whole financial statements.
    31. 31. Limitations1. Different companies operate in different industries each having different environmental conditions such as regulation, market structure, etc.2. Financial accounting information is affected by estimates and assumptions. Accounting standards allow different accounting policies, which impairs comparability and hence ratio analysis is less useful in such situations.3. Ratio analysis explains relationships between past information while users are more concerned about current and future information.
    32. 32. “I have mentioned before that financial intelligenceis a synergy of accounting, investing, marketing andlaw. Combine those four technical skills and makingmoney with money is easier." - Robert Kiyosaki - Thank you Any Questions?
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