Lesson 1-1 The Accounting Equation 4/25/2018 LESSON 1-1 The Accounting Equation

Do I need to know Accounting if I’m not going to be an Accountant???? Yes, the most popular major in college is Business. If you plan on majoring in Business, you will take several accounting classes. Even if you don’t major in Business, you may still have to take an Accounting class. Once you understand the accounting process, you will be able to perform your job more efficiently. LESSON 1-1

How many of you plan on owning your own business, even if it is a secondary business?? Inaccurate accounting records often contribute to business failure and bankruptcy. If you don’t understand the accounting process, poor business decisions could be made resulting in failure. LESSON 1-1

Accounting Terms Accounting – planning, recording, analyzing, and interpreting financial information Accounting system – planned process for providing financial information that will be useful to management Accounting records – organized summaries of a business’s financial activities Financial Statement – financial reports that summarize the financial condition and operation of a business. LESSON 1-1

Let’s Get Started!!! LESSON 1-1

Techknow Consulting Techknow Consulting will be our business for the first section. Techknow is a Proprietorship A proprietorship is a business owned by one person Techknow is a Service Business A service business is a business that performs an activity for fee. LESSON 1-1

About Techknow Techknow is owned by Kim Park and specializes in helping set up and troubleshoot computer networks. Techknow will rent office space and the equipment needed to operate. Kim must keep all of Techknow’s accounting records separate from her personal records Kim must use one checking account for Techknow and a separate checking account for her personal transactions. LESSON 1-1

Business Entity Accounting concept in which business’s financial information is recorded and reported separately from the owner’s personal financial information. LESSON 1-1

Asset Anything of value that is owned Can be used to acquire other assets or to operate a business Examples: Cash Insurance Supplies LESSON 1-1

Equities Financial rights to the assets of a business Two types LESSON 1-1

An amount owed by a business Liabilities An amount owed by a business LESSON 1-1

2. Owner’s Equity The amount remaining after the value of all liabilities is subtracted from the value of the assets. LESSON 1-1

THE ACCOUNTING EQUATION Lesson 1-1 4/25/2018 THE ACCOUNTING EQUATION page 8 The Accounting Equation must be in balance at all times. LESSON 1-1

Doing What is Right Ethics – the principles of right and wrong that guide an individual in making decisions Business Ethics – The use of ethics in making business decisions LESSON 1-1

LESSON 1-2 How Business Activities Change the Accounting Equation 4/25/2018 LESSON 1-2 How Business Activities Change the Accounting Equation

TERMS REVIEW page 13 Transaction – business activity that changes assets, liabilities, or owner’s equity Account – record summarizing all the information pertaining to a single item in the accounting equation Account title – name given to an account Account balance – amount in an account Capital – account used to summarize the owner’s equity in a business LESSON 1-2

Analyzing Transactions Get in the habit of following these three steps with each transaction: Read the transaction Identify the accounts affected Classify the accounts LESSON 1-2

RECEIVING CASH page 10 Ms. Park uses $5,000 of her own money to invest in Techknow. Transaction 1 August 1. Received cash from owner as an investment, $5,000.00. LESSON 1-2

PAYING CASH Transaction 2 August 3. Paid cash for supplies, $275.00. page 11 Transaction 2 August 3. Paid cash for supplies, $275.00. Accounts used: Supplies and Cash Transaction 3 August 4. Paid cash for insurance, $1,200.00. Accounts used: Prepaid Insurance and Cash LESSON 1-2

Buying on Account Techknow obtains supplies from Supply Depot Techknow arranges to pay for them at the end of the month This is known as Buying on Account In transaction 4, one asset is changed, Supplies, and one liability, Accounts Payable-Supply Depot, is changed, LESSON 1-2

TRANSACTIONS ON ACCOUNT page 12 Transaction 4 August 7. Bought supplies on account from Supply Depot, $500.00. Transaction 5 August 11. Paid cash on account to Supply Depot, $300.00. LESSON 1-2

How Transactions Change Owner’s Equity in an Accounting Equation Lesson 1-3 4/25/2018 LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation

Revenue Sale on Account Terms An increase in owner’s equity resulting from the operation of a business Sale on Account A sale for which cash will be received at a later date LESSON 1-3

REVENUE TRANSACTIONS page 14 Transaction 6 August 12. Received cash from sales, $295.00. Accounts Affected: Cash, and Kim Park, Capital Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. Accounts Affected: Acct. Rec-Oakdale and Kim Park, Capital LESSON 1-3

Terms Expense Withdrawal Transaction to pay fr goods or services needed to operate a business Decreases owner’s equity Withdrawal Assets taken out of a business for the owner’s personal use LESSON 1-3

EXPENSE TRANSACTIONS page 15 Transaction 8 August 12. Paid cash for rent, $300.00. Accounts Affected: Cash and Kim Park, Capital Transaction 9 August 12. Paid cash for telephone bill, $40.00. Accounts Affected: Cash and Kim Park, Capital LESSON 1-3

OTHER CASH TRANSACTIONS page 16 Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. Accounts Affected: Cash and Acct. Rec, Oakdale School Transaction 11 August 12. Paid cash to owner for personal use, $125.00. Accounts Affected: Cash and Kim Park, Capital LESSON 1-3