CE 101 - Bookkeeping and Accounting (Lecture Handout)

CE 101 - Bookkeeping and Accounting

Slide 1: Basic Accounting Formula

• Assets = Liabilities + Equity

• Dividends + Expenses + Assets = Liabilities + Owner’s Equity + Revenue

• Retained earnings = Beginning period retained earnings + net income/loss - cash dividends - stock dividends (showing us whether the company is genuinely profitable and can invest in itself)

Slide 2: Accounts

• Assets
  • Cash
  • Accounts Receivable
  • Real Property
  • Equipment
• Liabilities
  • Accounts Payable
  • Debt

Slide 3: Debits and Credits

• Debit Account(s)
  • Assets
• Credit Account(s)
  • Liabilities
  • Equity
• Total Debits = Total Credits

Video: Debits and Credits Explained

Slide 4: Example
A Realtor’s Balance Sheet

• Assets
  • Cash: $5,000
  • Accounts receivable: $2,500
  • Office Supply: $500
  • Office Equipment: $5,500
  • Vehicle: $18,900
  • Total assets: ? (Debit or Credit)
• Liabilities
  • Accounts payable: $2,210
  • Long-term debt: $5,850
  • Total liabilities: ? (Debit or Credit)
• Equity
  • Total equity: ? (Debit or Credit)

Slide 5: Journal Entry

A Journal Entry is simply a summary of the debits and credits of the transaction entry to the Journal. Journal entries are important because they allow us to sort our transactions into manageable data.

Slide 6: Trial Balance

A trial balance is a list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of each nominal ledger account and the value of that nominal ledger balance. Each nominal ledger account will hold either a debit balance or a credit balance.

Slide 7: Transaction Analysis

1. You close a sale of a house. The commission you receive is $2,500.
2. You spends $500 to maintain your business vehicle.

Slide 8: Steps to Perform Accounting

1. Analyze the transaction
2. Prepare the journal entry
3. Post the entry
4. Draft financial statements

Slide 9: Case Analysis for a Realtor

1. May 1st, Realtor Peter receives his real estate agent’s license and opens a bank account. He put $5,000 into the account and is issued 5,000 common shares in return.
2. May 2nd, Peter purchases a used car for $12,000. Peter figures it should be good for 10 years with no residual value expected. He pays $3,000 down with the balance of $9,000 financed with a 12% interest only vehicle loan (paid annually).
3. May 4th, Peter closes a transaction. His commission is $6,000. The receives the check and deposits it into his business account.
4. May 7th, Peter purchases $500 office supplies with his company credit card. The credit card payment is not due until June 15th.
5. May 17th, Peter contacts PDN and posts a listing advertisement on it.
6. May 25th, Peter withdraws $1,500 from the business as a dividend.
7. May 26th, Peter receives an invoice from PDN for $200 owed for the listing advertisement.