1. Accounting for
Entrepreneurs
By: Ms. Rand Marar

2. What is Accounting?
"The process of identifying, measuring and
communicating economic information to permit
informed judgments and decisions by users of the
information.” - The American Accounting Association. -

3. Four Fields of Accounting
• Financial Accounting.
• Management Accounting.
• Auditing.
• Tax Accounting.

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. The Elements of Accounting
Assets
Items with money value that are owned by a business
Ex. Cash, Building, Office Supplies…etc.

6. The Elements of Accounting (Cont’d)
Liabilities
Liabilities are debts owed by the business
Ex. Loans, Accounts Payable…etc.

7. The Elements of Accounting (Cont’d)
Owner’s
Equity
Capital, proprietorship, or net worth

8. The Accounting Equation!
Owner’s
Assets
= Liabilities
+ Equity
This equation must always balance!

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. 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. The Accounting Cycle
1. Analyze transactions. (Debit or Credit and when?)
2. Record in a journal.(Record)
3. Post from the journal to the ledger.(Summarize)
4. Prepare a trial balance of the ledger.

13. 2. Journal

14. 3. Ledger (T-Accounts)

15. 4. Trial Balance

16. 5. Financial Statements
1. Income Statement (contains only revenue and
expenses and shows net gain or loss)
2. Statement of Owner’s Equity (summarizes the
changes during the accounting period)
3. Balance Sheet (lists a firm’s assets, liabilities, and
owner’s equity).

17. Income statement

18. Statement of Changes in Owner’s
Equity

19. Balance Sheet

20. Users and Their Information Needs
1. Investors
2. Employees
3. Lenders
4. Suppliers and other trade creditors
5. Customers
6. Governments and their agencies
7. Public

21. Financial Ratios

22. Liquidity Ratios
• Current ratio = current assets / current liabilities
• Quick ratio = (cash + marketable securities + net
receivables) / current liabilities

23. Leverage Ratios
• Debt-to-asset ratio = total liabilities / total assets
• Debt-equity ratio = long-term debt / shareholder's
equity

24. Profitability Ratios
• ROA = net income / total average assets
• ROE = net income / total stockholders equity

25. Thank You
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