Chapter 1 – Starting a Proprietorship n Objectives: –Define accounting terms related to starting a service business organized as a proprietorship –Classify accounts as assets, liabilities, or owner’s equity and demonstrate their relationships in the accounting equation. –Identify accounting concepts and practices related to starting a service business organized as a proprietorship. –Analyze how transactions related to starting a service business organized as a proprietorship affect accounts in an accounting equation. –Prepare a balance sheet for a service business organized as a proprietorship from information in an accounting equation. n Essential Questions: –What is accounting? –What is a proprietorship? –What is the accounting equation? –How does a transaction affect the left or right side of the equation? –How can a transaction affect only one side of the equation? –To what does the phrase “on account” refer? –What types of accounts are listed on a balance sheet? –What should be done if the balance sheet is not in balance?

THE ACCOUNTING EQUATION Lesson 1-1, page 7 Anything of value that is owned 1) Equity of those to whom money is owed 2) Equity of the owner Equation must ALWAYS be in balance Equity = the value of an owner’s interest in property

Work Together 1-1 (p.8 wbC1-P1) & On Your Own 1-1 (p.8 wbC1-P1) WT

GAAP – Generally Accepted Accounting Principles (10) FASB – Financial Accounting Standards Board n GAAP: –Unit of Measurement: Business transactions are stated in numbers that have common values; that is, using a common unit of measurement (Dollar, Yen) Can be any “unit” – can you compare number of hours worked to # of items produced? # of hours worked to cost of goods? –Business Entity: Financial information is recorded and reported separately from the owner’s personal financial information –(on)Going Concern: financial statements are prepared with the expectation that a business will remain in operation indefinitely

RECEIVING CASH Lesson 1-2, page 9 Transaction 1 August 1. Received cash from owner as an investment, $10, “Capital” is the “account” used to summarize an owner’s equity

PAYING CASH Lesson 1-2, page 10 Transaction 2 August 3. Paid cash for supplies, $1, Transaction 3 August 4. Paid cash for insurance, $1, “Cash” & “Supplies” are things you own = “assets” “Prepaid Insurance” means you own the right to be protected = “asset”

TRANSACTIONS ON ACCOUNT (pay in the future) Lesson 1-2, page 11 Transaction 4 August 7. Bought supplies on account from Ling Music Supplies, $2, Transaction 5 August 11. Paid cash on account to Ling Music Supplies, $1, You are now “liable” to Ling Music Supplies because you haven’t paid him yet

Work Together 1-2 (p.12 wbC1-P2) & On Your Own 1-2 (p.12 wbC1-P2) OYO WT

PREPARING A BALANCE SHEET Lesson 1-3, page 14 5.Add amounts and compare the totals Write the heading. 2 2.Prepare the assets section. 3 3.Prepare the liabilities section. 4 4.Prepare the owner’s equity section. 6 6.Rule single lines (means you will add). 7 7.Write the totals. 8.Rule double lines…but not until they are equal (in balance). 8 Who? What? When? **Can be prepared every/any day – but at least once a year – more likely once a month

Work Together 1-3 (p.15 wbC1-P3) & On Your Own 1-3 (p.15 wbC1-P3) WT OYO