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Chapter 1

Chapter 1. Starting a Proprietorship: Changes that Affect the Accounting Equation. 1.1 . Accounting in Action. What is Accounting. Accounting = Language of Business Inaccurate Records= Failure Accounting-Process of planning, recording, analyzing, and interpreting financial info.

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Chapter 1

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  1. Chapter 1 Starting a Proprietorship: Changes that Affect the Accounting Equation

  2. 1.1 Accounting in Action

  3. What is Accounting • Accounting = Language of Business • Inaccurate Records= Failure • Accounting-Process of planning, recording, analyzing, and interpreting financial info

  4. Accounting System- A planned process designed to compile financial data and summarize the results in accounting records and reports • Financial Statements-Summarize the financial condition and operations of a business

  5. Accounting in Personal Life • Personal Financial Data Sheet • Net Worth Statement- Shows what an individual owns, what an individual owes, and the difference between the two • Asset- Anything of value that you own • Liability- An amount owed

  6. Personal Net Worth- Difference between personal assets and personal liabilities • Net Worth could also be called equity • Equity-Difference between assets and liabilities

  7. Total Assets-Total Liabilities=Equity (Net Worth)

  8. Personal Net Worth Statement Heading Assets Liabilities Net Worth • Double Rule= Amount is total • $ are NOT used

  9. Ethics in Business • Ethics-The principles of right and wrong that guide an individual in making decisions • Business Ethics- Use of ethics in making business decisions

  10. 1.2 How Business Activities Change the Accounting Equation

  11. The Business-Delgado Web Services • Service Business-Performs an activity for a fee • Proprietorship-Business owned by one person • Business Plan-Formal written document that describes the nature of a business and how it will operate

  12. Accounting Standards and Rules • GAAP-Generally Accepted Accounting Principles • Concept: Unit of Measurement-In U.S. all accounting records in $ • Concept: Business Entity-Business records separate from personal records

  13. The Accounting Equation Assets = Liabilities + Owner’s Equity Left Right Side Side EQUATION ALWAYS STAYS IN BALANCE!

  14. Any time a business spends $, receives $, or owes $ it is a business activity • Transaction-Any business activity that changes assets, liabilities or owner’s equity • Account-A record that summarizes all the transactions pertaining to a single item in the accounting equation • Account Title-Name given to account • Account Balance-The difference between the increases and decreases in an account

  15. Capital Account-An account used to summarize the owner’s equity in a business • Creditor- A person or business to whom a liability is owed

  16. 1.3 How Transactions Change Owner’s Equity in an Accounting Equation

  17. Transactions Affecting Owner’s Equity • Revenue- An increase in equity resulting from the sale of goods or services • Sale on Account- A sale for which payment will be received at a later date • Concept: Realization of Revenue: Revenue is recorded at the time goods or services are sold

  18. Expense- The cost of goods or services used to operate a business • Withdrawals- Assets taken from the business for the owner’s personal use

  19. Owner’s Equity + Revenue • Expenses • Withdrawals

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