Chapter 1

1. Chapter 1 Objectives Define accounting terms related to starting a service business organized as a proprietorship and to changes that affect the accounting equation Identify accounting concepts and practices related to starting a service business organized as a proprietorship and to changes that affect the accounting equation Classify accounts as assets, liabilities, or owner’s equity and demonstrate their relationships in the accounting equation Analyze how transactions affect accounts in an accounting equation

2. accounting accounting system accounting records financial statements service business proprietorship asset equities liability owner’s equity accounting equation ethics business ethics TERMS TO KNOW page 9 LESSON 1-1

3. LESSON 1-1 What is Accounting? It is the planning, recording, analyzing and interpreting financial information It is the language of business

4. What is Accounting • 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 • Financial Statements—financial reports that summarize the financial condition and operation of a business LESSON 1-1

5. The Business—TechKnow Consulting • Service Business—a business that performs an activity for a fee • Proprietorship—a business owned by one person; also called a sole proprietorship • Accounting Concept—Business Entity is when a business’s financial information is recorded and reported separately from the owner’s personal financial information LESSON 1-1

6. THE ACCOUNTING EQUATION page 8 • Assets—anything of value that is owned • Liabilities—an amount owed by a business • Owner’s Equity—theamount remaining after the value of all liabilities is subtracted LESSON 1-1

7. Equities and Ethics • Equities—financial rights to the assets of a business • A business has two types of equities 1. Equity to those to whom money is owed 2. Equity of the owner • Ethics—the principles of right and wrong that guide an individual in making decisions • Business Ethics—the use of ethics in making business decisions LESSON 1-1

8. Lesson 1-1 Let’s do Work Together 1-1 and On Your Own 1-1 on textbook page 9 LESSON 1-1

9. LESSON 1-2: How Business Activities Change the Accounting Equation Both sides of an equation must always equal The words “Received cash” in a transaction statement always mean cash increases; “Paid cash” in a transaction statement always means cash decreases It is important to establish the habit of: 1) reading the transaction 2) identifying the accounts 3) classifying the accounts

10. Definitions • 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—the account used to summarize the owner’s equity in a business LESSON 1-2

11. Transaction 1August 1. Received cash from owner as an investment, $5,000.00. RECEIVING CASH page 10 Unit of Measurement Concept: when business transactions are stated in numbers that have common values LESSON 1-2

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

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

14. Lesson 1-2 Let’s do Work Together 1-2 and On Your Own 1-2 on textbook page 13

15. LESSON 1-3: How Transactions Change Owner’s Equity in an Accounting Equation Revenue—an increase in owner’s equity resulting from the operation of a business Sale on account—asale for which cash will be received at a later date; also known as charge sale Expense—a decrease in owner’s equity resulting from the operation of a business Withdrawals—assets taken out of a business for the owner’s personal use

16. How Transactions Change Owner’s Equity in an Accounting Equation • Revenue (sales) transactions increase owner’s equity • “Sold on account” means that accounts receivable increases • Revenue is recorded at the time of a sale, regardless of whether the cash is received at that time or is to be received in the future • Expense transactions decrease owner’s equity LESSON 1-3

17. How Transactions Change Owner’s Equity in an Accounting Equation When cash is received on account, the capital account is not affected. The sale was recorded previously and the capital account was increased at the time of the sale. When payment is received, only cash and accounts receivable are affected. Withdrawals by the owner also decrease owner’s equity.

18. Transaction 6 August 12. Received cash from sales, $295.00. REVENUE TRANSACTIONS page 14 Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. LESSON 1-3

19. Transaction 8 August 12. Paid cash for rent, $300.00. EXPENSE TRANSACTIONS page 15 Transaction 9 August 12. Paid cash for telephone bill, $40.00. LESSON 1-3

20. Transaction 10 August 18. Received cash on account from Oakdale School, $200.00. OTHER CASH TRANSACTIONS page 16 Transaction 11 August 18. Paid cash to owner for personal use, $125.00. LESSON 1-3

21. Lesson 1-3 Let’s do Work Together 1-3 and On Your Own 1-3 on textbook page 17 LESSON 1-1

22. Chapter Assignments • Chapter 1 Study Guide • 1-1 Application Problem • 1-2 Application Problem • 1-3 Application Problem • 1-4 Mastery Problem • 1-5 Challenge Problem LESSON 1-1