1. Chapter 1 Accounting Terms

2. LESSON 1-1
The Accounting Equation

3. ACCOUNTING What is accounting? The language of business! Planning
Recording
Analyzing
Interpreting financial information
The language of business!

4. ACCOUNTING SYSTEM
A planned process for providing financial information that will be useful to management

5. ACCOUNTING RECORDS
Organized summaries of a business’s financial activities

6. FINANCIAL STATEMENTS
Financial reports that summarize the financial condition and operations of a business.
Used by:
Suppliers that are considering extending credit to a business
Institutions that are considering extending loans to a business
Business owners and managers

7. SERVICE BUSINESS A business that performs an activity for a fee.
Accounting
Doctor
Stylist
Lawn care
Daycare
Car Wash

8. PROPRIETORSHIP A business owned and controlled by one person
Advantages
Ease of formation
Total control by the owner
Profits that are not shared
Disadvantages
Limited resources
Unlimited liability
Limited expertise
Limited life
Obligation to follow the laws of both the federal government and the state and city in which the business is formed.

9. ASSET Anything of value that is owned Cash Supplies
Accounts Receivable
Prepaid Insurance
Equipment

10. Equities Financial right to the assets of a business Two types
Equity of those to whom money is owed – Liabilities
Equity of the owner

11. Liabilities An amount owed by a business Accounts payable
Notes payable

12. OWNER’S EQUITY
The amount remaining after the value of all liabilities is subtracted from the value of all assets.

13. ACCOUNTING EQUATION
An equation showing the relationship among assets, liabilities, and owner’s equity.
ASSETS = LIABILITIES + OWNER’S EQUITY
A = L + OE

14. ETHICS
The principles of right and wrong that guide an individual in making decisions.

15. BUSINESS ETHICS
The use of ethics in making business decisions.

16. REVIEW OF 1-1 What is accounting?
Give two examples of a service business.
What is a proprietorship?
State the accounting equation.

17. LESSON 1-2
How Business Activities Change the Accounting Equation

18. TRANSACTION
A business activity that changes assets, liabilities, or owner’s equity.
Example
A business pays cash for supplies
After each transaction, the accounting equation must remain in balance.

19. ACCOUNT
A record summarizing all the information pertaining to a single item.

20. ACCOUNT TITLE
The name given to an account.

21. ACCOUNT BALANCE
The amount in an account.

22. CAPITAL
The account uses to summarize the owner’s equity in a business.
The capital account is an owner’s equity account

23. REVIEW OF 1-2
What must be done if a transaction increases on the left side of the accounting equation?
How can a transaction affect only one side of the accounting equation?
To what does the phrase on account refer?

24. LESSON 1-3
How Transactions Change Owner’s Equity in an Accounting Equation

25. REVENUE
An increase in owner’s equity resulting from the operation of a business.
Money from a sale.

26. SALE ON ACCOUNT OR A CHARGE SALE
A sale for which cash will be received at a later date.

27. EXPENSE
A decrease in owner’s equity resulting from the operation of a business.
Utilities
Repairs
Miscellaneous
Rent
Salaries

28. WITHDRAWALS
Assets taken out of a business for the owner’s personal use.

29. REVIEW OF 1-3
How is owner’s equity affected when cash is received from sales?
How is owner’s equity affected when services are sold on account?
How is owner’s equity affected when cash is paid for expenses.

30. GAAP Generally Accepted Accounting Principles Why is GAAP necessary?
By requiring the financial statement preparers to consistently follow certain standards and rules such as GAAP, the users are able to compare the financial statements of several companies and to track the results of one company over several time periods.

31. SEC Security and Exchange Commission
Has the authority to establish GAAP
Allowed a series of private organizations to determine GAAP

32. FASB Financial Accounting Standards Board
The organization that the SEC has given the authority to set accounting standards.
Established in 1973.

33. ACCOUNTING CONCEPTS FOR CHAPTER 1
Business Entity
Applied when a business’s financial information is recorded and reported separately from the owner’s personal financial information.
Unit of Measurement
Applied when business transactions are stated in numbers that have common values.
Example – in the US transactions are recorded in dollars.

34. ASSIGNMENT
Applications:
1-1
1-2
1-3
1-4 – mastery
1-5 - challenge