Starting a Proprietorship Chapter 1

Accounting-planning, recording, analyzing, and interpreting financial information. Public Private $62,000-$109,000 Accounting Clerk Payroll Clerk What is Accounting?

Accounting system-a planned process for providing financial information that will be useful by management Accounting records-organized summaries of a business’s financial activities What is Accounting?

What is Accounting? “Accounting is the language of business” Many companies have failed due to inaccurate accounting records Understanding accounting helps managers and owners make better business decisions. What is Accounting?

The principles of right and wrong that guide an individual in making decisions This the action legal? Does the action violate company or professional standards? Who is affected and how by the action? Business Ethics

Business Ethics GAAP-Generally accepted accounting principles Refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements. Business Ethics

The Accounting Equation Service Business- a business that performs an activity for a fee Proprietorship- a business owned by one person Also referred to a sole proprietorship Name some proprietorship's in and around the Mapleton area The Accounting Equation

The Accounting Equation Assets- anything of value owned by the company Cash Supplies Prepaid Insurance **Make sure to keep personal assets separate. The Accounting Equation

The Accounting Equation Equities- financial rights to the assets of a business Two different types 1. Equity of those to whom the money is owed An amount of money owed by a business is called a liability 2.Equity of the Owner The Accounting Equation

The Accounting Equation Equities- financial rights to the assets of a business Two different types 2. Equity of the owner The amount remaining after the value of all assets. The Accounting Equation

The Accounting Equation Assets = Liabilities + Owner’s Equity The Accounting Equation

The Accounting Equation Assets = Liabilities and Owner’s Equity Left Side Right Side The accounting equation MUST be in balance to be correct The Accounting Equation

How Business Activities Change the Accounting Equation Transaction- A business activity that changes assets, liabilities and O.E Example: a business that pays cash for supplies. **AFTER EACH TRANSACTION THE ACCOUNTING EQUATION MUST REMAIN IN BALANCE** How Business Activities Change the Accounting Equation

How Business Activities Change the Accounting Equation Account- is the single item in the accounting equation Account title- the name given to the account Example- Cash, Supplies, Prepaid Insurance Account Balance- The amount of money in the account Capital- the account being used to summarize the owner’s equity account How Business Activities Change the Accounting Equation

How Business Activities Change the Accounting Equation Transactions Aug. 1 Received cash from owner as investment, $10,000 Aug. 2 Paid cash for supplies, $1,577 Aug. 3 Paid cash for insurance, $1,200 Aug. 7 Bought supplies on account from Living Music Supplies $2,720 Aug. 9 Paid cash to Living Music Supplies, $900 How Business Activities Change the Accounting Equation

Preparing a Balance Sheet Top 3 lines Name of the business The name of the report (Balance Sheet) The date September 10, 2013 Left hand column “Assets” centered on the top line Under the “Assets” heading write each asset account and the amount in the second column Preparing a Balance Sheet

Preparing a Balance Sheet Left hand column “Assets” centered on the top line Under the “Assets” heading write each asset account and the amount in the second column Preparing a Balance Sheet

Preparing a Balance Sheet Right hand column “Liabilities” centered on the top line Under the “Liabilities” heading write each liability account and the amount in the second column ** Skip one line** Preparing a Balance Sheet

Preparing a Balance Sheet Right hand column Write “Owner’s Equity” centered one line down from the liabilities account. Under the “Owner’s Equity” heading write the owner’s equity account and the amount in the second column Preparing a Balance Sheet

Preparing a Balance Sheet Under the list of assets, write “Total Assets” Add up all the asset amounts and write the total next to the “Total Assets” line Under the list of liabilities and OE, write “Total Liabilities’ and Owner’s Equity” Add up all the liabilities' amounts and OE amounts and write the total next to the “Total Liabilities’ amounts and OE” Preparing a Balance Sheet

Preparing a Balance Sheet Ask yourself, Do they match? If yes, double underline the totals If no, re-check your work to find the error. You have successfully made a Balance Sheet!! Preparing a Balance Sheet