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Introduction to Accounting

Some old but new terms

Overview of Unit

Financial statements

Calculating your Net Worth

  • Your net worth is a measure of how valuable you are in terms of $$$.
  • Net worth = own – owe
  • Are any of your assets more liquid than others?

New Terms

  • Asset
  • Liability
  • Equity
  • Income
  • Expenses

What is Accounting?

  • the process of recording, analyzing and interpreting the economic activities of a business


  • being responsible, being able to explain any shortages or discrepancies


  • something of value is exchanged for something else of value
  • with any transaction at least 2 things change eg. If you buy inventory – inventory goes up – cash goes down

Financial statements

  • reports that summarize the financial purpose of a business
  • Must be presented to shareholders in the form of an annual report.

Learn to speak in accounting


  • Something of value owned by the business
  • A resource controlled by an individual as the result of past events


  • Are debts or amounts owed to others


  • What you would have left after you have paid off your debts
Assets – Liabilities = Owner’s Equity


  • money that business generates from business activities (i.e. sales)

Expenses or costs

  • Money that the business must pay to carry on business activities (i.e. rent)
  • Sometimes you need to spend money to earn it.

Income or profits

  • The money that the business has earned after all expenses are paid
Revenue - Expenses = Profit

Assignnment #12 Dream Pad Assignment

Preparing Financial Statements

There are 3 types of Financial Statements:

  1. Balance sheets
  2. Income statements
  3. Cash-flow statements

The Balance Sheet

  • Shows a business’s financial position on a particular date
  • The Balance Sheet Equation is used to determine the owner’s equity
    • Assets – Liabilities = Owner’s Equity
  • To determine the total assets, use
    • Assets = Liabilities + Owner’s Equity
  • Balance Sheet Preparation
  • Prepare a balance sheet for the monopoly game
  • see examples from page 281 in your World of Business text)

The Income Statement

  • The Income Statement shows the profit or loss of a business over period of time
  • Income Statement Equations
    • Revenue – Expenses = Net Income
  • for retail business:
    • Revenue – Costs of Goods Sold = Gross Profit (Inventory)
    • Gross Profit – Expenses = Net Income
  • Prepare an income statement for the monopoly game too see Overview of Unit
  • Sources of Revenue: pass go, rent, ? card, etc.
  • Sources of Expense: rent, ? cards, income tax etc.
  • See page 285 for an example in your text

Cash-Flow Statement

  • Used to show the movement of cash in and out of a business (often used for revenue estimates)
  • Will be covered in more depth in a future accounting course.

Assignment #13: Monopoly

Monopoly Rules

Use a game sheet with 'T' accounts to keep track of your revenues, expenditures, land & equity as well as your bank account.
You are to prepare daily Balance Sheets and Income Statements (i.e. every circuit around the track is to have an associated Balance Sheet and Income Statement - do this in Excel/Calc NOT in Word/Writer)