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Understanding the Accounting Equation in Business

Learn about the accounting equation defining relationships among assets, liabilities, and owner's equity. Explore the importance of accounting systems, records, and financial statements in business operations.

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Understanding the Accounting Equation in Business

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  1. LESSON 1-1 The Accounting Equation Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

  2. What is Accounting? Planning, recording, analyzing, & interpreting financial information (also known as the language of business) In order to do this, you must have some type of LESSON 1-1

  3. Accounting System A planned process for providing financial information that will be useful to management Consisting of LESSON 1-1

  4. Accounting Records To organize summaries of a business’s financial activities You will use these to create LESSON 1-1

  5. Financial Statements Financial reports that summarize the financial condition and operations of a business LESSON 1-1

  6. Business Entity – A business’s financial information is recorded and reported separately from the owner’s personal financial information. The Business – Techknow Consulting page 6 LESSON 1-1

  7. The Business – Techknow Consulting page 6 A business that performs an activity for a fee Service Business Sole Proprietor-ship A business owned by one person LESSON 1-1

  8. THE ACCOUNTING EQUATION page 8 • The Accounting Equation shows the relationship among assets, liabilities, & owner’s equity It is most often stated as: Assets = Liabilities + Owner’s Equity LESSON 1-1

  9. THE ACCOUNTING EQUATION page 8 • Asset– anything of value that is owned by the business • Liability – an amount owed by a business • Equities – financial rights to the assets of a business • Equity of those to whom money is owed • Equity of the owner • Owner’s Equity – the amount remaining after the value of all liabilities is subtracted from the value of all assets LESSON 1-1

  10. THE ACCOUNTING EQUATION page 8 LESSON 1-1

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

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