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

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
and items that generate future benefits and
repayments.
Ex. Cash, Building, Office Supplies, Accounts
Receivables…etc.

6. The Elements of Accounting (Cont’d)
Liabilities
Liabilities are debts owed by the business and items
that represent economic future sacrifices.
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)
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. Analyze Transactions
Involves taking a decision on whether a
particular business event has an economic
effect on the assets, liabilities or equity of the
business. It also involves ascertaining the
magnitude of the transaction.

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. 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. Recording Transactions in Journal Entries
(practical example)

16. Recording Transactions in Journal Entries
(practical example)

17. Posting from Journal to Ledger

18. Posting from Journal to Ledger

19. Posting from Journal to Ledger

20. Prepare Unadjusted Trial Balance

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. Record Adjusting Entries

23. Prepare Adjusted Trial Balance

24. Financial Statements
1. 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. Income Statement

26. Statement of Retained Earnings

27. Balance Sheet

28. 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

29. Advantages & Limitations of
Financial Ratios

30. Advantages
1. 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. Limitations
1. 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. “I have mentioned before that financial intelligence
is a synergy of accounting, investing, marketing and
law. Combine those four technical skills and making
money with money is easier." - Robert Kiyosaki -
Thank you
Any Questions?