Presentation on theme: "Chapter 1 – Starting A Proprietorship"— Presentation transcript:
1 Chapter 1 – Starting A Proprietorship What is Accounting? (see page 4)Do you know someone who works in accounting?Do you have a job that provides a paycheck? Your company uses accounting to keep accurate records for each employee
2 Chapter 1 – Starting A Proprietorship First nine chapters will take you through the entire accounting cycle for a Service business organized as a proprietorshipChapter 1 describes:How proprietorship is startedThe transactions that occur when the business is organizedHow the accounting equation is used to analyze these transactionsHow to create a balance sheet and the relationship of the balance sheet to the accounting equation
3 Encore Music – Business that is used for chapters 1-9 Chart of Accounts – found on page 3 – will be used for the first 9 chapters.Chart of accounts is used for determining the classification of accounts and to identify which accounts are temporary and which are permanentChart of accounts is extremely important to companies because they drive the accounting system. This is how businesses track various sources of income and expenses.Why would a business organize as a proprietorship?What are characteristics of a proprietorship?Can you name some service businesses in Middleville?
4 Lesson 1-1: THE ACCOUNTING EQUATION Lesson 1-1, page 7
5 TERMS REVIEWAccounting – Planning, recording, analyzing and interpreting financial informationAccounting System – A planned process for providing financial information that will be useful to managementAccounting Records – Organized summaries of a business’s financial activitiesService Business – Business that performs an activity for a feeProprietorship – Business owned by one personLesson 1-1, page 8
6 TERMS REVIEW – cont’d Asset – Anything of value that is owned Equities – Financial rights to the assets of a businessLiability – An amount owed by a businessOwner’s Equity – The amount remaining after the value of all liabilities is subtracted from the value of all assetsAccounting Equation:Assets = Liabilities + Owner’s EquityBusiness Entity Concept – A business’s financial information is recorded and reported separately from the owner’s personal financial informationLesson 1-1, page 8
7 Follow-up:Can you list assets you or your parents own?Can you identify possible liabilities you or your parents have?Can you identify assets owned by the school?
8 Lesson 1-1: THE ACCOUNTING EQUATION Lesson 1-1, page 7
9 TERMS REVIEW Lesson 1-2Transaction – a business activity that changes assets, liabilities or owner’s equityAccount – A record summarizing all the information pertaining to a single item in the accounting equationAccount title – The name given to an accountAccount balance – The amount in an accountCapital – Account used to summarize the owner’s equity in a businessUnit of Measurement Concept – Stating numbers that have common units of measurement; i.e. U.S. dollars. (see page 9)Lesson 1-2, page 12
10 Lesson 1-2: How Business Activities Change the Accounting Equation – General Info Assets = Liabilities + Owner’s EquityEquation must always remain equalWhen reading transactions, Received Cash always means cash increases; Paid Cash always means cash decreasesTransactions don’t always affect both sides of the equationWhen analyzing transactions, alwaysRead the transactionIdentify the accountsClassify the accounts (Asset, Liability or Owner’s Equity
11 RECEIVING CASHTransaction 1 August 1. Received cash from owner as an investment, $10,Lesson 1-2, page 9
12 Transaction 2 August 3. Paid cash for supplies, $1,577.00. PAYING CASHTransaction 2 August 3. Paid cash for supplies, $1,Transaction 3 August 4. Paid cash for insurance, $1,These two transactions only affected the asset side of the equation – demonstrating that you won’t always have entries on each side of the equationLesson 1-2, page 10
13 TRANSACTIONS ON ACCOUNT Transaction 4 August 7. Bought supplies on account from Ling Music Supplies, $2,Transaction 5 August 11. Paid cash on account to Ling Music Supplies, $1,Lesson 1-2, page 11
14 TERMS REVIEWBalance sheet – Common financial statement that reports assets, liabilities and owner’s equity on a specific dateGoing Concern concept – This is applied when financial statements are prepared with the expectation that a business will remain in operation indefinitely. (see page 13)Lesson 1-3, page 15
15 Lesson 1-3: PREPARING A BALANCE SHEET 1. Write the heading.2. Prepare the assets section.13. Prepare the liabilities section.2344. Prepare the owner’s equity section.65785. Add amounts and compare the totals.6. Rule single lines.7. Write the totals.8. Rule double lines.Lesson 1-3, page 14
16 More on Balance SheetsFinancial statements usually have a three-line heading which answers the questions: who, what and when.Write account titles in full – abbreviations should be avoided whenever possible to prevent misunderstanding.