1. CENTURY 21 ACCOUNTING © Thomson/South-Western 1 LESSON 7-1 WHAT IS THE ACCOUNTING EQUATION

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 7-1 In 5 minutes individually on a piece of paper list all Accounting Concepts that you can. At the end of 5 minutes click again Accounting Period Cycle Adequate Disclosure Business Entity Consistent Reporting Matching Expenses with Revenue Objective Evidence Realization of Revenue Unit of Measurement TYPE ONE WRITING Using a different color writing utensil correct all errors

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 7-1 In 5 minutes individually on a piece of paper list all Accounting Concepts that you can. At the end of 5 minutes click again Accounting Period Cycle Adequate Disclosure Business Entity Consistent Reporting Matching Expenses with Revenue Objective Evidence Realization of Revenue Unit of Measurement TURN PAPER OVER REPEAT TYPE ONE WRITING Using a different color writing utensil correct all errors

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 7-1 Going Concern Financial statements are prepared with the expectation that a business will remain in operation indefinitely.

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 7-1 Take turns and identify the classifications for each account title listed Accounts Receivable ASSET Sales REVENUE Accounts Payable LIABILITY Rent Expense EXPENSE Prepaid Insurance ASSET Drawing OWNER’S EQUITY Utilities Expense EXPENSE Cash ASSET Capital OWNER’S EQUITY Advertising Expense EXPENSE Supplies ASSET

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 7-1 Take turns and identify the Normal Balance for each account title listed Accounts Receivable DEBIT Accounts Payable CREDIT Prepaid Insurance DEBIT Cash DEBIT Capital CREDIT Supplies DEBIT

7. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 7-1 Preparing Financial Statements -- Accounting information is summarized, organized, and reported to owners and managers.

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 7-1 All Financial information must be reported if good business decisions are to be made A financial statement with incomplete information is similar to a book with missing pages. The complete story is not told. Which Accounting Concept is this???? Adequate Disclosure

9. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 7-1 Preparing an Income Statement

10. CENTURY 21 ACCOUNTING © Thomson/South-Western Income Statement Covers a “Period of time” Revenues minus Expenses Shows Net Income or Loss Information is obtained from WORKSHEET Income Statement Columns

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 7-1 INCOME STATEMENT INFORMATION ON A WORK SHEET page 182

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 7-1 HEADING OF AN INCOME STATEMENT 1 2 3 page 182 1.Center the name of the company on the first line. 2.Center the name of the report on the second line. 3.Center the date of the report on the third line.

13. CENTURY 21 ACCOUNTING © Thomson/South-Western OPEN BOOK TO PAGE 182 FOR WORKSHEET TO BE USED IN THE FOLLOWING SAMPLE Pay close attention to the sample. You will need to create your own income statements when this is finished

14. CENTURY 21 ACCOUNTING © Thomson/South-Western 14 LESSON 7-1 COMPONENT PERCENTAGE ANALYSIS OF AN INCOME STATEMENT page 184 1.Write the first section Heading, REVENUE: Heading are always at the extreme left followed by a colon and NO numbers 2. On the next line write the first account title under the heading REVENUE: Sales (this is found on the worksheet) Account titles are always indented 2 spaces (or 1 centimeter) under heading 3.Record the Balance of the account, on the same line in the second amount column.

15. CENTURY 21 ACCOUNTING © Thomson/South-Western 15 LESSON 7-1 1.Write the second section Heading, EXPENSES: Heading are always-at the extreme left-followed by a colon & NO numbers 2. On the next line write the first account title under the heading EXPENSES: Advertising Expense (this is found on the worksheet) Account titles are always indented 2 spaces (or 1 centimeter) under heading 3.Record the Balance of the account, on the same line in the FIRST amount column. 4. Repeat steps 2 and 3 for every expense account on the worksheet

16. CENTURY 21 ACCOUNTING © Thomson/South-Western 16 LESSON 7-1 1. Rule a single line under the last expense (to show that you are going to total) Add up all of the expenses 2. On the next line write the Words TOTAL EXPENSES indented 2 spaces (or 1 centimeter) under the last expense 3.Record the amount of total expenses, on the same line in the second amount column.

17. CENTURY 21 ACCOUNTING © Thomson/South-Western 17 LESSON 7-1 1. Rule a single line under the Total expenses Calculate Net Income or Loss (Total Revenues – Total Expenses) 2. On the next line write the Words Net Income or Net Loss (as appropriate) At the extreme left -- under the total expenses 3.Record the amount of Net Income/Loss, on the same line in the second amount column.

18. CENTURY 21 ACCOUNTING © Thomson/South-Western 18 LESSON 7-1 1.Compare the amount of Net Income / Loss with the worksheet. 1.If the two amounts are not the same, an error has been made, you will need to find and correct it before continuing 2.If the two amounts are the same, Rule a double line across both amount columns below the amount of net income to show that the amount has been verified as correct.

19. CENTURY 21 ACCOUNTING © Thomson/South-Western 19 LESSON 7-1 Component Percentage The relationship between Total Expenses and Sales Net Income/Loss and Sales What is a good percentage? Compare to Previous years or periods Similar Businesses Industry Averages

20. CENTURY 21 ACCOUNTING © Thomson/South-Western 20 LESSON 7-1 Total Expenses Component Percentage Total Expenses ÷ Total Sales = Total Expenses Component Percentage What is a good percentage? Compare to Previous years or periods Similar Businesses Industry Averages

21. CENTURY 21 ACCOUNTING © Thomson/South-Western 21 LESSON 7-1 1. Sales always = 100% (this is what you are comparing the other to) 2. Calculate Total Expenses Component Percentage Total Expenses ÷ Sales 1,466.00 ÷ 3,565.00 = 1,466.00 ÷ 3,565.00 = 41.1% (always use 1 decimal, even if zero)

22. CENTURY 21 ACCOUNTING © Thomson/South-Western 22 LESSON 7-1 1. Calculate Net Income/Loss Component Percentage Net Income/Loss ÷ Sales 2,099.00 ÷ 3,565.00 = 2,099.00 ÷ 3,565.00 = 58.9% (always use 1 decimal, even if zero)

23. CENTURY 21 ACCOUNTING © Thomson/South-Western 23 LESSON 7-1 Open Excel File – ACCT ch 07-1 Textbook page 186 – read directions Workbook page 145 – Worksheet Work together step by step to complete this problem on the smart board. When finished complete 7-1 On Your Own and Application – turn in both.