© 2000 South-Western Educational Publishing Chapter 1 – Starting A Proprietorship n What is Accounting? (see page 4) n Do you know someone who works in.

© 2000 South-Western© 2000 South-WesternEducational PublishingEducational Publishing

Chapter 1 – Starting A ProprietorshipChapter 1 – Starting A Proprietorship

What is Accounting? (see page 4)

Do you know someone who works in accounting?

Do you have a job that provides a paycheck? Your company uses accounting to keep accurate records for each employee


Chapter 1 – Starting A ProprietorshipChapter 1 – Starting A Proprietorship

First nine chapters will take you through the entire accounting cycle for a Service business organized as a proprietorship

Chapter 1 describes:– How proprietorship is started– The transactions that occur when the business is

organized– How the accounting equation is used to analyze

these transactions– How to create a balance sheet and the relationship

of the balance sheet to the accounting equation


Encore Music – Business that is used for chapters 1-9Encore Music – Business that is used for chapters 1-9

Chart of Accounts – found on page 3 – will be used for the first 9 chapters.

Chart of accounts is used for determining the classification of accounts and to identify which accounts are temporary and which are permanent

Chart of accounts is extremely important to companies because they drive the accounting system. This is how businesses track various sources of income and expenses.

Why would a business organize as a proprietorship?

What are characteristics of a proprietorship? Can you name some service businesses in

Middleville?


Lesson 1-1: THE ACCOUNTING EQUATIONLesson 1-1: THE ACCOUNTING EQUATION

Lesson 1-1, page 7Lesson 1-1, page 7


TTERMS REVIEWERMS REVIEWAccounting – Planning, recording, analyzing

and interpreting financial information

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

Service Business – Business that performs an activity for a fee

Proprietorship – Business owned by one person



TTERMS REVIEW – cont’dERMS REVIEW – cont’d


Asset – Anything of value that is owned

Equities – Financial rights to the assets of a business

Liability – An amount owed by a business

Owner’s Equity – The amount remaining after the value of all liabilities is subtracted from the value of all assets

Accounting Equation:

Assets = Liabilities + Owner’s Equity

Business Entity Concept – A business’s financial information is recorded and reported separately from the owner’s personal financial information


Follow-up:Follow-up:

Can you list assets you or your parents own?

Can you identify possible liabilities you or your parents have?

Can you identify assets owned by the school?


Lesson 1-1: THE ACCOUNTING EQUATIONLesson 1-1: THE ACCOUNTING EQUATION



TTERMS REVIEW Lesson 1-2ERMS REVIEW Lesson 1-2Transaction – 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 – Account used to summarize the owner’s equity in a business

Unit of Measurement Concept – Stating numbers that have common units of measurement; i.e. U.S. dollars. (see page 9)



Lesson 1-2: How Business Activities Change the Lesson 1-2: How Business Activities Change the Accounting Equation – General InfoAccounting Equation – General Info

Assets = Liabilities + Owner’s Equity Equation must always remain equal When reading transactions, Received Cash always

means cash increases; Paid Cash always means cash decreases

Transactions don’t always affect both sides of the equation

When analyzing transactions, always– Read the transaction– Identify the accounts– Classify the accounts (Asset, Liability or Owner’s

Equity


RECEIVING CASHRECEIVING CASH


Transaction 1 August 1. Received cash from owner as an investment, $10,000.00.


PAYING CASHPAYING CASH


Transaction 2 August 3. Paid cash for supplies, $1,577.00.

Transaction 3 August 4. Paid cash for insurance, $1,200.00.

These two transactions only affected the asset side of the equation – demonstrating that you won’t always have entries on each side of the equation


TRANSACTIONS ON ACCOUNTTRANSACTIONS ON ACCOUNT


Transaction 4 August 7. Bought supplies on account from Ling Music Supplies, $2,720.00.

Transaction 5 August 11. Paid cash on account to Ling Music Supplies, $1,360.00.


TTERMS REVIEWERMS REVIEWBalance sheet – Common financial statement

that reports assets, liabilities and owner’s equity on a specific date

Going Concern concept – This is applied when financial statements are prepared with the expectation that a business will remain in operation indefinitely. (see page 13)



5. Add amounts and compare the totals.

Lesson 1-3: PREPARING A BALANCE SHEETLesson 1-3: PREPARING A BALANCE SHEET


5

1

3

4

2

76

1. Write the heading.

2. Prepare the assets section.

3. Prepare the liabilities section.

4. Prepare the owner’s equity section.

6. Rule single lines.

7. Write the totals.

8. Rule double lines.

8


More on Balance SheetsMore on Balance Sheets

Financial statements usually have a three-line heading which answers the questions: who, what and when.

Write account titles in full – abbreviations should be avoided whenever possible to prevent misunderstanding.

© 2000 South-Western Educational Publishing Chapter 1 – Starting A Proprietorship n What is Accounting? (see page 4) n Do you know someone who works in.

Documents

accounting equation

accounting equation

assets accounting equation

proprietorship n chapter

business activity

fee proprietorship business

business owners equity

business liability