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

2. RECAP 2 LESSON 1-2  What is the accounting Equation?  Assets = Liability + Owner’s equity  What side of the equation are Assets on?  What side is Liabilities and OE on?  What is an Asset?  What is a Liability?  What is Owner’s Equity?

3. Accounts 3 LESSON 1-2  Each section of the equation has many accounts:  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 dollar amount in an account

4. Capital, Kim Parker Capital: account used to summarize the owner’s equity in a business Account title: Capital, Kim Parker How much, or the value of the company that is the owner’s “His/Her share of the kitty” Used to record any investments by the owner in the company Is this an Asset, a Liability, or Owner’s Equity Account? 4 LESSON 1-2

5. Cash Cash: The amount of money the company has in its bank account Is Cash something you own or owe? “So is it an Asset, a Liability, or Owner’s Equity Account? It is an Asset as the business owns the cash…… Account Title: Cash Is this on the left side or the right side of the equation? Left for all assets 5 LESSON 1-2

6. Prepaid Insurance: Insurance premiums paid in advance for insurance coverage - “prepaid” Guaranteed coverage during the specified time If you prepaid it, do you owe or own the insurance policy? You own the coverage Is this an Asset, Liability, or OE? Asset Is it on the left or the right side of the equation? Account Title: Prepaid Insurance Why is this considered an asset? Has value - if the company liquidates, insurance company refunds unused portion 6

7. Supplies Supplies: Items needed to operate the business Not for sell to customers Example: pens, papers, ink for printers etc…. Do we own or owe supplies? Own Is this an asset or a liability? Asset What side of the equation is it on? Left Account Title: Supplies 7 LESSON 1-2

8. Accounts Payable Purchase something on credit – pay for it later Example: buy an office desk and they will be me later Do you own credit or owe credit? Increases what you owe Is this an Asset, Liability, or OE Liability But what about the desk? Do you own or owe it? Increases the value of Supplies as you own it, and increases what you owe as you still need to pay for it. Does not increase the value of OE 8 LESSON 1-2

9. Transactions  Transaction: a business activity that changes assets, liabilities, or owner’s equity  Involves buying, selling, or writing something off  $$$ involved  Accounting equation changes with each transaction – both sides must always be equal  All transaction Impact 2 accounts  Can be one on each side or two on one side of the equation  Always ask the question “Does my account balance go up or go down with this transaction”. 9 LESSON 1-2

10. Chart of Accounts Hand out Balance Sheet Accounts: (100) Assets 110Cash 120Petty Cash 130Accounts Receivable _Oakdale School 140Accounts Receivable – Campus Internet Cafe 150Supplies 160Prepaid Insurance (200)Liabilities: 210Accounts Payable – Supply Depot 220Accounts Payable – Thomas Supply Company (300)Owner’s Equity 310Kim Park, Capital 320Kim Park, Drawing 330Income Summary 10

11. 11 LESSON 1-2 RECEIVING CASH Transaction 1 August 1. Received cash from owner as an investment, $5,000.00. page 10

12. 12 LESSON 1-2 PAYING CASH Transaction 2 August 3. Paid cash for supplies, $275.00. Transaction 3 August 4. Paid cash for insurance, $1,200.00. page 11

13. 13 LESSON 1-2 TRANSACTIONS ON ACCOUNT Transaction 4 August 7. Bought supplies on account from Supply Depot, $500.00. Transaction 5 August 11. Paid cash on account to Supply Depot, $300.00. page 12

14. Think about it: Is it an Asset, a Liability, or Owner’s Equity: Cash Accounts Payable Accounts Receivable Capital Account Prepaid Insurance Supplies Which account is used to: Show the owner’s equity in the business To show how much the business owes to a supplier To show the value of supplies owned by the business What is the Accounting Equation? 14 LESSON 1-2 Asset Liability Asset OE

15. Practice An activity that changes assets, liabilities or Owners Equity? Keeping business Records separate from personal records is what concept? A record of all information on one single item in the equation? The name given to an account? The amount in an account is called? The account to summarize the owner’s equity? 15 LESSON 1-2 Account Balance Account Transaction Business Entity Account Title Capital

16. True or False Transactions: Always impact more than one account? Always increase one account and decrease another? Always are on different sides of the equation? An investment from the owner in the business impacts the cash and OE accounts? If you purchase supplies on account, the cash account increases? If you purchase supplies on account, the value of Accounts Payable decreases? T F F T F F

17. Work Together 1 - 2 Trans No. Assets = Liabilities + Owner’s Equity 1++ 2++ 3- + 4-- 17 LESSON 1-2