Lesson 1-1 The Accounting Equation 6/26/2018 LESSON 1-1 The Accounting Equation

WHAT IS ACCOUNTING? (BE CAREFUL! These terms are closely related!) page 6 (BE CAREFUL! These terms are closely related!) Accounting – planning, recording, analyzing, and interpreting financial information. Accounting system – a planned process for providing financial information that will be useful to managers. Accounting records – Organized summaries of a business’s financial activities. LESSON 1-1

WHAT IS ACCOUNTING? Accounting is the language of business page 6 Accounting is the language of business Needed by owners, managers, and accountants Financial statements – summarize the financial condition and operations of a business. Used to make decisions. Inaccurate records contribute to business failure and bankruptcy. Poor business decisions can hurt business and non-profit organizations. Everyone in the U.S. earns money and pays taxes. LESSON 1-1

THE BUSINESS— TECHKNOW CONSULTING page 6 Service business – performs an activity for a fee. Proprietorship – owned by one person. LESSON 1-1

CONCEPTS page 6 (Accounting Concepts will be given throughout the chapters and you can expect to see these on the test.) Concept: Business Entity When a business’s financial information is recorded and reported separately from the owner’s personal financial information. LESSON 1-1

THE ACCOUNTING EQUATION Lesson 1-1 6/26/2018 THE ACCOUNTING EQUATION page 8 LESSON 1-1

THE ACCOUNTING EQUATION page 8 Asset – anything of value that is owned Equities – Financial rights to the assets of a business Liability – an amount owed by a business Owner’s equity – the amount remaining after the value of all liabilities is subtracted from the value of all assets. The Accounting Equation must ALWAYS BE IN BALANCE!!! Left side (assets) = right side (liabilities and owner’s equity) LESSON 1-1

MAKING ETHICAL DECISIONS page 8 Ethics – principles of right and wrong that guide an individual in making decisions. Business ethics – use of ethics in making business decisions. Accounting scandals can create a huge impact in the business world and accountants are trusted to be ethical at all times. LESSON 1-1

TERMS REVIEW accounting accounting system accounting records 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 1-2 How Business Activities Change the Accounting Equation 6/26/2018 LESSON 1-2 How Business Activities Change the Accounting Equation

HOW BUSINESS ACTIVITIES CHANGE THE ACCOUNTING EQUATION page 10 Transaction – a business activity that changes assets, liabilities, or owner’s equity. CONCEPT: UNIT OF MEASUREMENT Transactions are stated in numbers that have common values (for example, in the U.S. we use dollars) Capital – the account used to summarize the owner’s equity in the business. LESSON 1-1

RECEIVING CASH page 10 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. Transaction 3 August 4. Paid cash for insurance, $1,200.00. 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

TERMS REVIEW transaction account account title account balance Capital page 13 transaction account account title account balance Capital Remember: equation must always be in balance. If you increase on the left, you also must increase on the right. Decrease on left, then decrease on right. LESSON 1-2

How Transactions Change Owner’s Equity in an Accounting Equation Lesson 1-3 6/26/2018 LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation

REVENUE TRANSACTIONS page 14 Revenue – An increase in owner’s equity resulting from the operation of a business (a sale). Sale on account – A sale for which cash will be received at a later date (charge sale). CONCEPT: REALIZATION OF REVENUE Revenue is recorded at the time goods or services are sold. LESSON 1-1

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 1-3

EXPENSE TRANSACTIONS page 15 Expense – a decrease in owner’s equity resulting from the operation of a business. Withdrawal – Assets taken out of a business for the owner’s personal use. LESSON 1-1

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 1-3

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 1-3

TERMS REVIEW revenue sale on account expense withdrawals page 17 Lesson 1-3 6/26/2018 TERMS REVIEW page 17 revenue sale on account expense withdrawals LESSON 1-3