Chapter 1 Balance Sheet Accounts

Big Ideas Define accounting terms related to starting a service business organized as a proprietorship Identify accounting concepts and practices 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

Big Ideas cont’d 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

What is Accounting? Planning recording analyzing, and interpreting financial information Who uses accounting? –Owners –Managers –Accounting personnel Why –To understand the information in accounting reports in order to help themselves make better business decisions

The Business Entity A service business is a business that performs an activity for a fee A Proprietorship is a business owned by one person

Review 1 What is accounting? Planning recording analyzing, and interpreting financial information What is a service business? A business that performs an activity for a fee What is a proprietorship? A business owned by one person

THE ACCOUNTING EQUATION Lesson 1-1, page 7

The Accounting Equation Assets = Liabilities + Owner’s Equity Assets are anything that a business owns Liabilities are what a business owes Owner’s Equity is nothing more that the difference between what is owned and what is owed by a business

Review 2 What are Assets? Anything that a business owns What are Liabilities? What a business owes What is Owner’s Equity? The difference between what is owned and what is owed by a business What is the Accounting Equation? Assets= Liabilities + Owner’s Equity

Receiving Cash A transaction is defined as a business activity that changes assets, liabilities, or owner’s equity Accounts are defined as records that summarize all of the information pertaining to a single item in the accounting equation An account title is the name given to an account

RECEIVING CASH Lesson 1-2, page 9 Transaction 1 August 1. Received cash from owner as an investment, $10,

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,

TRANSACTIONS ON ACCOUNT 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,

Review 3 What is a transaction? A business activity that changes assets, liabilities, or owner’s equity What is an account? Records that summarize all of the information pertaining to a single item in the accounting equation

Review 4 What is an account title? The name given to an account What is an account balance? The amount in an account What is capital? The account used to summarize the owner’s equity in a business

Reporting Financial Information A balance sheet is a financial statement that reports assets, liabilities, and owner’s equity

5.Add amounts and compare the totals. PREPARING A BALANCE SHEET Lesson 1-3, page 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

Review 5 What is a Balance Sheet? A way of showing a company’s financial health at a period in time List the three sections of a Balance Sheet Assets Liabilities Owner’s Equity

Review 6 What kinds of accounts are on the left side of a balance sheet? Assets What kinds of accounts are on the right side of a balance sheet? Liabilities Owner’s Equity What should be done if a balance sheet is not in balance? Find the errors before completing any more work