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

2. 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

3. 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

4. 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

5. Let’s Get Started!!!
LESSON 1-1

6. 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

7. 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

8. 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

9. 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

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

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

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

13. 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

14. 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

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

16. 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

17. 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

18. 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,
LESSON 1-2

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

20. 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

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

22. 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

23. 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

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

25. 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

26. EXPENSE TRANSACTIONS
page 15
Transaction 8 August 12. Paid cash for rent, $
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

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