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

2. 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

3. 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

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

5. 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

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

7. 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

8. 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

9. 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

10. LESSON 1-2 How Business Activities Change the Accounting Equation
6/26/2018
LESSON 1-2
How Business Activities Change the Accounting Equation

11. 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

12. RECEIVING CASH
page 10
Transaction 1 August 1. Received cash from owner as an investment, $5,
LESSON 1-2

13. PAYING CASH Transaction 2 August 3. Paid cash for supplies, $275.00.
page 11
Transaction 2 August 3. Paid cash for supplies, $
Transaction 3 August 4. Paid cash for insurance, $1,
LESSON 1-2

14. 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

15. 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

16. 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

17. 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

18. REVENUE TRANSACTIONS
page 14
Transaction 6 August 12. Received cash from sales, $
Transaction 7 August 12. Sold services on account to Oakdale School, $
LESSON 1-3

19. 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

20. EXPENSE TRANSACTIONS
page 15
Transaction 8 August 12. Paid cash for rent, $
Transaction 9 August 12. Paid cash for telephone bill, $40.00.
LESSON 1-3

21. OTHER CASH TRANSACTIONS
page 16
Transaction 10 August 12. Received cash on account from Oakdale School, $
Transaction 11 August 12. Paid cash to owner for personal use, $
LESSON 1-3

22. 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