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 proprietorship
Chapter 1 describes:
How proprietorship is started
The transactions that occur when the business is organized
How the accounting equation is used to analyze these transactions
How 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 permanent
Chart 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 REVIEW
Accounting – Planning, recording, analyzing and interpreting financial information
Accounting System – A planned process for providing financial information that will be useful to management
Accounting Records – Organized summaries of a business’s financial activities
Service Business – Business that performs an activity for a fee
Proprietorship – Business owned by one person
Lesson 1-1, page 8

6. TERMS REVIEW – cont’d 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
Accounting Equation:
Assets = Liabilities + Owner’s Equity
Business Entity Concept – A business’s financial information is recorded and reported separately from the owner’s personal financial information
Lesson 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 1-2
Transaction – a business activity that changes assets, liabilities or owner’s equity
Account – A record summarizing all the information pertaining to a single item in the accounting equation
Account title – The name given to an account
Account balance – The amount in an account
Capital – Account used to summarize the owner’s equity in a business
Unit 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 Equity
Equation must always remain equal
When reading transactions, Received Cash always means cash increases; Paid Cash always means cash decreases
Transactions don’t always affect both sides of the equation
When analyzing transactions, always
Read the transaction
Identify the accounts
Classify the accounts (Asset, Liability or Owner’s Equity

11. RECEIVING CASH
Transaction 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 CASH
Transaction 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 equation
Lesson 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 REVIEW
Balance sheet – Common financial statement that reports assets, liabilities and owner’s equity on a specific date
Going 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. 1
3. Prepare the liabilities section. 2 3 4
4. Prepare the owner’s equity section. 6 5 7 8
5. 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 Sheets
Financial 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.