Lesson 1-1 The Accounting Equation 5/10/2018 LESSON 1-1 The Accounting Equation

Accounting Overview What is Accounting? What is an Accounting system? Lesson 1-1 5/10/2018 Accounting Overview What is Accounting? What is an Accounting system? What are Accounting Records? What is the “language of business”? Financial Reports? Accounting is planning, recording, analyzing, and interpreting financial information. Accounting system is a planned process for providing financial informaiton that will be useful to management. Accounting Records are organized summaries of a business’s financial activites Language of business - Accounting Financial Reports - include things such a balance sheets, LESSON 1-1

Accounting Overview Service Business? Business owned by one person? Lesson 1-1 5/10/2018 Accounting Overview Service Business? Business owned by one person? Service Business - performs an activity for a fee Proprietorship - LESSON 1-1

Sole Proprietorship Advantages? Disadvantages? LESSON 1-1 Lesson 1-1 5/10/2018 Sole Proprietorship Advantages? Disadvantages? Advantages - owner retains total control of the company; ability to make own decisions Disadvantages - personally responsible for the debts LESSON 1-1

THE ACCOUNTING EQUATION Lesson 1-1 5/10/2018 THE ACCOUNTING EQUATION page 8 LESSON 1-1

Basic Accounting Equation Lesson 1-1 5/10/2018 Basic Accounting Equation ASSETS = LIABILITIES + OWNERS EQUITY Stuff that has future economic benefit: cash, receivables, inventory, patents, equipment, etc. What’s left over is mine. Things I owe to to other people: payables, tax liabilities, loans, mortgages, etc. Like the basic laws of physics, this equation cannot be out of balance. LESSON 1-1

Accounting Overview Ethics? Principles of right and wrong! Lesson 1-1 5/10/2018 Accounting Overview Ethics? Principles of right and wrong! Using in business is called Business Ethics Is the action illegal or violate any laws - if so they don’t do it (examples) Violate company standards - what is written in the handbook Does the action violate professional standards - each job has a set of professional standards that are set Who is affected, and how, by the action? - determine right/wrong and what is ethical to you - determine how the action affects individuals and groups. LESSON 1-1

TERMS REVIEW accounting accounting system accounting records Lesson 1-1 5/10/2018 TERMS REVIEW page 9 accounting accounting system accounting records financial statements service business proprietorship asset equities liability owner’s equity accounting equation ethics business ethics LESSON 1-1

Lesson 1-1 How Business Activities Change the Accounting Equation 5/10/2018 LESSON 1-2 How Business Activities Change the Accounting Equation

TERMS REVIEW transaction account account title account balance capital Lesson 1-1 5/10/2018 TERMS REVIEW page 13 transaction account account title account balance capital LESSON 1-1

Lesson 1-1 5/10/2018 RECEIVING CASH page 10 Transaction 1 August 1. Received cash from owner as an investment, $5,000.00. Transaction - the activity that demonstrates what happens Always be sure to read the transaction, identifying the accounts, and classifying the accounts. Account - record summarizing information about one item of the accounting equation Account Title - The name given to the account - this can be anything the company decides on. Account Balance - the running total of an account such as cash Capital - is the investment that used to support the company we refer to as Owner’s Equity LESSON 1-1

PAYING CASH Transaction 2 August 3. Paid cash for supplies, $275.00. Lesson 1-1 5/10/2018 PAYING CASH page 11 Transaction 2 August 3. Paid cash for supplies, $275.00. Show the transaction then analyze the transaction by answering - what accounts are affected and are they increased or decreased.s Transaction 3 August 4. Paid cash for insurance, $1,200.00. LESSON 1-1

TRANSACTIONS ON ACCOUNT Lesson 1-1 5/10/2018 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 1-1

Lesson 1-1 5/10/2018 REVENUE TRANSACTIONS page 14 Transaction 6 August 12. Received cash from sales, $295.00. Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. LESSON 1-1

Lesson 1-1 5/10/2018 EXPENSE TRANSACTIONS page 15 Transaction 8 August 12. Paid cash for rent, $300.00. Transaction 9 August 12. Paid cash for telephone bill, $40.00. LESSON 1-1

OTHER CASH TRANSACTIONS Lesson 1-1 5/10/2018 OTHER CASH TRANSACTIONS page 16 Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. Transaction 11 August 12. Paid cash to owner for personal use, $125.00. LESSON 1-1

Lesson 1-1 5/10/2018 REVENUE TRANSACTIONS page 14 Transaction 6 August 12. Received cash from sales, $295.00. Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. LESSON 1-1

Lesson 1-1 5/10/2018 EXPENSE TRANSACTIONS page 15 Transaction 8 August 12. Paid cash for rent, $300.00. Transaction 9 August 12. Paid cash for telephone bill, $40.00. LESSON 1-1

OTHER CASH TRANSACTIONS Lesson 1-1 5/10/2018 OTHER CASH TRANSACTIONS page 16 Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. Transaction 11 August 12. Paid cash to owner for personal use, $125.00. LESSON 1-1

TERMS REVIEW revenue sale on account expense withdrawals page 17 Lesson 1-1 5/10/2018 TERMS REVIEW page 17 revenue sale on account expense withdrawals LESSON 1-1

Lesson 1-1 REPORTING FINANCIAL INFORMATION ON A BALANCE SHEET 5/10/2018 LESSON 1-3 REPORTING FINANCIAL INFORMATION ON A BALANCE SHEET

TERMS REVIEW Balance Sheet LESSON 1-1 Lesson 1-1 5/10/2018 A financial statement that reports assets, liabilities, and owner’s equity on a specific date. LESSON 1-1

T- Accounts Represent the Accounting Cycle with a T Lesson 1-1 5/10/2018 T- Accounts Represent the Accounting Cycle with a T This can be the same for a balance sheet - with the sheet making a T Assets Liabilities + Owner’s Equity d LESSON 1-1

Liabilities - right side Owner’s Equity - right side Lesson 1-1 5/10/2018 Body of a Balance Sheet Three major sections Assets - left side Liabilities - right side Owner’s Equity - right side LESSON 1-1

Steps to Prepare a Balance Sheet Lesson 1-1 5/10/2018 Steps to Prepare a Balance Sheet Heading Name of business Name of the report Date of the report Left Side Center the word Assets Under the heading write each asset and amount Final Line is Total Assets with a single line above and double line below Right Side Center the word Liabilities Under the heading write each Account Payable and amount Center the word Owner’s Equity Under the heading write Account title and amount Final line is Total Liab. And Owner’s Eq. with a single line above and double line below. Total of both sides must EQUAL - if not equal double check work. LESSON 1-1

Work Together P.8 Answer: $11,000 $4,000 $28,000 Lesson 1-1 5/10/2018 Work Together P.8 Assets = Liabilities + Owner’s Equity ? $3,000 $8,000 $10,000 ? $6,000 $63,000 $35,000 ? Answer: $11,000 $4,000 $28,000 LESSON 1-1

Work Together P.12 Assets = Liabilities + Owner’s Equity + + + + +,- Bought supplies on account Received cash from owner as an investment Paid cash for insurance Paid cash on account Assets = Liabilities + Owner’s Equity + + + + +,- - - LESSON 1-1

Work Together P. 15 Using the October 31 balances in the accounting equation, prepare a balance sheet for the Hess Company LESSON 1-1