DO NOW:  Complete the Survey on my desk  When finished, take: 2 textbooks 1 Working Papers workbook  on the side bookshelf 1 Obligation form  Preview your books

Housekeeping  Textbook Online Activities Textbook Online Activities Preview Xtra for online activities

The Accounting Equation Chapter 1 Starting a Proprietorship: Changes That Affect the Accounting Equation

What is accounting? (4 important definitions to understand accounting)  Accounting is planning, recording, analyzing, and interpreting financial information.  Accounting system is a planned process for providing financial information that will be useful to management.  Accounting records are organized summaries of business financial activities.  Financial statements are financial reports that summarize the financial conditions and operations of a business.

Accounting is the language of business  The Language of Business The Language of Business

Why study accounting?  Why study accounting? Why study accounting? Consistently ranked among the best jobs in America

The Accounting Profession  What do accountants do? Your first job usually at a public accounting firm  Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu  Ernst & Young Ernst & Young  KPMG KPMG  PricewaterhouseCoopers PricewaterhouseCoopers Move on to careers with an accounting focus in business or government Can move into partnership in a firm, Chief Financial Officer

Careers in accounting - Activity  Read and Pass activity:  Read the article on a type of accountant, take notes  Pass your article on, and take the next article  When all articles are read, discuss the different types of accountants in your group. Decide which type might be the best fit for you.

The business we’ll work with…  TechKnow Proprietorship (sole proprietorship) – a business owned by one person. Service business – a business that performs an activity for a fee

Proprietorship  Why might a business organize as a proprietorship? Because the owner retains TOTAL control of the company.  Characteristics of a proprietorship Owner is personally responsible for the debts of the proprietorship. Owner has sole authority to act for the proprietorship.

The Accounting Equation Assets = Liabilities + Owner’s Equity

The accounting equation  Assets Anything of value that is owned. Ex. Cash to buy supplies for the business.  Liabilities The amount owed by a business  Ex. Money borrowed from banks  Owner’s Equity Owner’s interest in the business

The accounting equation  The equation shows the relationship among items of value a business has and the financial rights to the item.  The equation must always have equal amounts on each side.  The equation is made up of assets, liabilities, and owner’s equity.

The accounting equation  Assets = Liabilities + Owner’s Equity  A business has assets of $100,000 and liabilities of $60,000. What is the owner’s equity?  $100,000 = $60,000 + ?  ? = $40,000  The equation would be…..  $100,000 = $60,000 + $40,000

The accounting equation  The Accounting Equation The Accounting Equation

The accounting equation  Work Together, p. 9 Complete the blanks to balance the accounting equation. Read about TechKnow Consulting’s accounting equation on p. 8

Assets, liabilities, and owner’s equity accounts Accounting Basics Lesson 4: Assets, Liabilities, Owner's Equity, Accounts Payable. danieldickson2 10 videos Subscribe Subscribed

Assets, liabilities and owner’s equity Activity – Work in partnerships and classify the account titles as assets, liabilities or owner’s equity

What changes the Accounting Equation?

Transactions  Business activities that change the accounting equation are called transactions. After each transaction the accounting equation must remain in balance.

Cash Transactions

Receiving Cash Assets=Liabilities+Owner’s Equity Cash=Kim Park, Captial $ 0 TechKnow owner Kim Park uses $5,000 of her own money To invest in TechKnow. P. 11 Cash (Asset) is increased by $5000, Kim Park, Capital Acct (OE) is increased by $5,0000 Assets=Liabilities+Owner’s Equity + + $5000=$ 0+$ ,000 _________+5000

Paying Cash Assets=Liabilities+Owner’s Equity CashSuppliesKim Park, Capital $5000=$0+$5000 TechKnow owner Kim Park uses $275 of TechKnow’s cash To buy supplies. P ______ $4725$ 275=$ 0+$5000 Cash (Asset) is decreased by $275, Supplies (Asset) is increased by $275 Assets=Liabilities+Owner’s Equity -, +

Paying Cash for Insurance Assets=Liabilities+OE CashSuppliesPrepaid Insurance Kim Park, Capital $4725$ 275 $0= +$5000 TechKnow owner Kim Park uses $1,200 of TechKnow’s cash to pay her insurance premium for a year’s worth of insurance. She’s prepaying for insurance that she’ll have for the year. P. 11 Assets=Liabilities+Owner’s Equity -, _____+1200______ $3525$ 275$1200=$ 0+$5000 Cash (Asset) is decreased by $1200, Prepd Insurance (Asset) is increased by $275

On Account Transactions We think of it as ‘charging’ something. We put the purchase ‘on account’ with the vendor. We later pay ‘on account’, and pay off what we owe.

Buying Supplies on Account Assets=Liabilities+OE CashSuppliesPrepaid Insurance Accts Payable, Supply Depot Kim Park, Capital $3525$ 275$1200=$ 0+$5000 TechKnow needs supplies, and arranges to pay for them at the end of the month. p $ + 500______ $3525$ 775$1200=$ 500+$5000 Supplies (Asset) is increased by $500, Supply Depot (Liabilities) is increased by $500 Assets=Liabilities+Owner’s Equity ++

Paying Cash for Supplies on Account Assets=Liabilities+OE CashSuppliesPrepaid Insurance Accts Payable, Supply Depot Kim Park, Capital $3525$ 775$1200=$ 500+$5000 TechKnow has to pay a portion of the supply costs. (New businesses don’t have a positive credit profile yet, so they get very limited terms for repayment.) p ______ $3225$ 775$1200=$ 200+$5000 Supplies (Asset) is increased by $500, Supply Depot (Liabilities) is increased by $500 Assets=Liabilities+Owner’s Equity --

In Summary, to balance your accounting equation:  If transactions are on both sides of the equal sign, add or subtract both. + = + or - = -  If transactions occur on one side of the = sign, add and subtract on that side. +,- = or -,+ = or = +,- or = -+

PRACTICE  Determine how transactions change an accounting equation.  Work Together 1-2 Txtbk p. 13, Working Papers p. 7  On Your Own 1-2 Txtbk p. 13, Working Papers, p. 8

Received Cash from Sales Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable, Supply Depot Kim Park, Capital $3225$ 775$1200=$ 200+$5000 TechKnow receives cash for from sales, $295. Revenue is earned. p $3520$ 775$1200=$ 200+$5295 Cash (Asset) is increased by $295, Kim Park, Capital (OE) is increased by $295 Assets=Liabilities+Owner’s Equity ++

Sold Services on Account Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable, Supply Depot Kim Park, Capital $3520$ 775$1200=$ 200+$5295 TechKnow makes a sale, but won’t receive cash for it until later. It’s a charge sale, or sale on account. $350. Revenue is earned. p $3520$350$ 775$1200=$ 200+$5645 Accts Rec (Asset) is increased by $350, Kim Park, Capital (OE) is increased by $350 Assets=Liabilities+Owner’s Equity ++

Paid Cash for Rent Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable Supply Depot Kim Park, Capital $3520$ 300$ 775$1200=$ 200+$5295 Techknow pays cash for rent, $300. p $3220$350$ 775$1200=$ 200+$5345 Cash(Asset) is decreased by $300, Kim Park, Capital (OE) is decreased by $300 Assets=Liabilities+Owner’s Equity --

Paid cash for Phone Bill Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable Supply Depot Kim Park, Capital $3220$ 300$ 775$1200=$ 200+$5345 Techknow pays cash for a phone bill, $40. p $3180 $350$ 775$1200=$ 200+$5305 Cash(Asset) is decreased by $40, Kim Park, Capital (OE) is decreased by $40 Assets=Liabilities+Owner’s Equity --

Paid cash on Account Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable Supply Depot Kim Park, Capital $3180$ 300$ 775$1200=$ 200+$5305 Techknow receives cash on account from Oakdale School, $200. p $200 $3380 $150$ 775$1200=$ 200+$5305 Cash(Asset) is increased by $200, Accts Rec, Oakdale School (Assets) is decreased by $200 Assets=Liabilities+Owner’s Equity +, -

Paid cash to owner for personal use Assets=Liabilities+OE Cash Accts Rec – Oakdale school Supplies Prepaid Insurance Accts Payable Supply Depot Kim Park, Capital $3380$ 150$ 775$1200=$ 200+$5305 Techknow’s owner, Kim Park, withdrawals $125 for personal use. p $3255 $150$ 775$1200=$ 200+$5180 Cash(Asset) is decreased by $125, Kim Park, Capital (OE) is decreased by $125 Assets=Liabilities+Owner’s Equity --

PRACTICE  Work Together 1-3 Txtbk, p. 17 Working Papers, p. 9  On Your Own 1-3 Txtbk, p. 17 Working papers, p. 10

**Chapter 1 Test – Wednesday, September 19th