© 2015 Cengage Learning. All Rights Reserved. LESSON 1-1 Using Accounting Principles and Records Learning Objectives LO1 Explain the relationship between the accounting equation and accounting records. LO2 Explain the relationship between a subsidiary ledger and a controlling account. Page 6 © 2015 Cengage Learning. All Rights Reserved.

Financial Reporting for Departments Lesson 1-1 Financial Reporting for Departments LO1 Financial information for a business can be recorded, summarized, and reported in a variety of ways. If managers of individual departments want to use financial statements to assist in making decisions, information for each department must be recorded separately. Page 6 © 2015 Cengage Learning. All Rights Reserved.

© 2015 Cengage Learning. All Rights Reserved. Lesson 1-1 Accounting Equation LO1 Financial rights to the assets of a business are called equities. Anything of value that is owned is called an asset. An amount owed by a business is called a liability. Page 6 The owners’ equity in a corporation is called stockholders’ equity. © 2015 Cengage Learning. All Rights Reserved.

© 2015 Cengage Learning. All Rights Reserved. Lesson 1-1 Accounting Records LO1 Accounting records show changes and the current account balance of each asset, liability, and owners’ equity (or stockholders’ equity) account. Business papers from which information is obtained for a journal entry are called source documents. The source document is the original business paper indicating that the transaction did occur and that the amounts recorded in the accounting records are accurate and true. Page 6 © 2015 Cengage Learning. All Rights Reserved.

© 2015 Cengage Learning. All Rights Reserved. Lesson 1-1 General Journal LO1 The recording of debit and credit parts of a transaction is called double-entry accounting. A form for recording transactions in chronological order is called a journal. A journal used to record only one kind of transaction is called a special journal. A general journal may be used to record all business transactions. Page 6 © 2015 Cengage Learning. All Rights Reserved.

Normal Balances of Accounts Lesson 1-1 Normal Balances of Accounts LO1 A record that summarizes all the transactions pertaining to a single item in the accounting equation is called an account. Page 6 © 2015 Cengage Learning. All Rights Reserved.

General and Subsidiary Ledgers Lesson 1-1 General and Subsidiary Ledgers LO2 A group of accounts is called a ledger. A ledger that contains all accounts needed to prepare financial statements is called a general ledger. A ledger that is summarized in a single general ledger account is called a subsidiary ledger. An account in a general ledger that summarizes all accounts in a subsidiary ledger is called a controlling account. Page 7 © 2015 Cengage Learning. All Rights Reserved.

General and Subsidiary Ledger File Maintenance Lesson 1-1 General and Subsidiary Ledger File Maintenance LO2 1 The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current is called file maintenance. 2 Page 7 3 © 2015 Cengage Learning. All Rights Reserved.

Lesson 1-1 Audit Your Understanding 1. How is the accounting equation stated most commonly? ANSWER Assets = Liabilities + Owners’ Equity. Page 9 © 2015 Cengage Learning. All Rights Reserved.

Lesson 1-1 Audit Your Understanding 2. What is the normal balance of an asset account? A revenue account? ANSWER An asset account has a normal debit balance; a revenue account has a normal credit balance. Page 9 © 2015 Cengage Learning. All Rights Reserved.

Lesson 1-1 Audit Your Understanding 3. What are the three needs met by Whiley’s account numbering system? ANSWER (a) A separate numeric listing is provided for each ledger division. (b) A predesigned arrangement of numbers is provided within each ledger division. (c) Account number digits are spaced to allow the addition of new accounts. Page 9 © 2015 Cengage Learning. All Rights Reserved.