ACCOUNTING

A PRESENTATION BY MORGAN PARKER

THE ACCOUNTING EQUATION

• Formula for basic accounting and bookkeeping

• Assets = Liabilities + Shareholder’s Equity
• (Liabilities = Assets – Shareholder’s Equity)
• Shareholder’s Equity = Assets – Liabilities
• Teaches us that a companies assets will ALWAYS equal its liabilities plus the
shareholder’s equity (or owners equity in the case of a non-public company)
DEBITS VS CREDITS

• Idea that for every transaction there is an equal and opposite effect in AT
LEAST 2 different accounts
• Transactions recorded as either debits or credits, debits being on the left and
credits on the right typically
• Debits INCREASE assets OR DECREASE liabilities
• Credits DESCREASE assets OR INCREASE liabilities
GAAP

• Generally Accepted Accounting Principles

• Set of accounting principles all companies must adhere to
• Creates a recognized and uniform standard, regardless of the size of company
or industry
• Gives confidence to investors when looking at companies financial
statements
FINANCIAL STATEMENTS

• Record of all financial transactions a company makes

• Expected to follow Generally Accepted Accounting Principles
• Typically include 3 main reports: a Balance Sheet, Income Statement, and
Statement of Cash Flows
• Balance Sheet: shows assets, liabilities, and shareholder’s equity over a certain period of
time
• Income Statement: shows revenues and expenses over certain period of time
CASH VS ACCRUAL

• Two schools of thought on how to record revenue and expenses: Cash

Accounting and Accrual Accounting
• Under the Cash Theory, revenue is recorded as soon as the cash is received, and
expenses are recorded when the cash is actually paid out
• According to the Accrual Accounting Theory, revenue is recorded when the work is
done or when cash was earned and expenses are recorded when they are incurred,
regardless of when the cash is received or taken out

• Generally, Accrual Accounting is what is used in order to follow GAAP