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

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LESSON 1-2 How Business Activities Change the Accounting Equation

1-1 THE ACCOUNTING EQUATION page 8

1-1 3 main types of business structures Sole Proprietorship Partnership Corporation

1-1 Sole Proprietorship Advantages Easy to Create Total Control Profits Disadvantages Limited Resources Unlimited Liability Limited Expertise Limited Life Laws page 7

1-1 Partnership Advantages Supply of Capital Expertise Easy to Create Taxation Disadvantages Unlimited Liability Limited Life Partnership Agreement Shared Decision Making Share Profits

1-1 Corporation Advantages Limited Liability Supply of Capital Disadvantages Shared decision making Shared profits Taxation Hard to Create page 271

1-1 Accounting Concept Business Entity –Financial information is recorded and reported separately from the owner’s personal financial information

1-1 Accounting Concept Unit of Measurement –Business transactions are stated in numbers that have common values – that is, using a common unit of measurement.

1-1 Investment Asset =Liability +Owner’s Equity 1.Kim Parks invests \$5,000.00 of her own money in the business. 2.The asset account CASH in increased 3.The owner’s equity account KIM PARK, CAPITAL is increased 4.The accounting equation changed but by the same amount on each side, therefore the equation is still in balance. Cash + \$5,000.00 Kim Park, Capital

1-1 Supplies Asset =Liability +Owner’s Equity CashSuppliesPrepaid Insurance Kim Park, Capital Kim Parks invests \$5,000.00 of her own money in the business. +275.00 \$5,000.00 -275.00 August 3. Paid cash for supplies \$275.00 Calculate the new balance for Cash 5,000.00 - 275.00 = 4,725.00 4,725.00 275.00 0.00 \$5,000.00

1-1 Insurance Asset =Liability +Owner’s Equity CashSuppliesPrepaid Insurance Kim Park, Capital +275.00 \$5,000.00 -275.00 August 4. Paid cash for insurance \$1,200.00 Calculate the new balances 4,725.00 275.00 0.00 \$5,000.00 +1,200.00-1,200.00 3,525.00 275.00 1,200.00 0.00 \$5,000.00

1-1 Supplies on Account Asset =Liability +Owner’s Equity CashSuppliesPrepaid Insurance Accounts Payable – Supply Depot Kim Park, Capital +275.00 \$5,000.00 -275.00 August 7. Bought supplies on account \$500.00 Calculate the new balances 4,725.00 275.00 0.00 \$5,000.00 +1,200.00-1,200.00 3,525.00 275.00 1,200.00 0.00 \$5,000.00 +500.00 3,525.00 775.00 1,200.00 500.00 \$5,000.00

1-1 Paid on Account Asset =Liability +Owner’s Equity CashSuppliesPrepaid Insurance Accounts Payable – Supply Depot Kim Park, Capital +275.00 \$5,000.00 -275.00 August 11. Paid cash on account \$500.00 Calculate the new balances 4,725.00 275.00 0.00 \$5,000.00 +1,200.00-1,200.00 3,525.00 275.00 1,200.00 0.00 \$5,000.00 +500.00 3,525.00 775.00 1,200.00 500.00 \$5,000.00 -500.00 3,025.00 775.00 1,200.00 0.00 \$5,000.00

1-1 Work Together 1-2 Workbook page 7 Textbook page 13

1-1 Trans. No. Assets =Liabilities +Owner’s Equity 1 2 3 4 + Supplies + Cash + Accounts Payable - Cash - Accounts Payable + Capital + Prepaid Insurance

1-1 Class Work On Your Own 1-2

1-1 Trans. No. Assets =Liabilities +Owner’s Equity 1 2 3 4 5 + Supplies + Cash + Accounts Payable - Cash - Accounts Payable + Capital + Prepaid Insurance - Cash + Supplies

1-1 Stereo Asset =Liability +Owner’s Equity 1.Buy a stereo that costs \$3,000.00 2.You have a down payment of \$500.00 3.You borrow the rest from the bank. \$3,000.00\$500.00 \$2,500.00

1-1 Homework Application 1-2

1-1 TERMS REVIEW transaction account account title account balance capital page 13