ACCOUNTING I Chapter 1

WHAT IS ACCOUNTING? Accounting – planning, recording, analyzing, and interpreting financial information Accounting System – A planned process for providing financial information that will be useful to management Accounting Records – Organized summaries of a business’s financial activities Financial Statements – Financial reports that summarize the financial condition and operations of a business Service Business – a business that performs an activity for a fee Proprietorship – a business owned by one person

THE PROPRIETORSHIP Advantages Ease of formation Total Control by the owner Profits that are not shared Disadvantages Limited resources Unlimited liability Limited expertise Limited life Obligation to follow the laws of both the federal government and the state and city in which the business is formed

THE ACCOUNTING EQUATION Assets = Liabilities + Owner’s Equity Left side amounts Right side amounts

THE ACCOUNTING EQUATION Asset – Anything of value that is owned Equities – Financial rights to the assets of a business 1.Equity of those to whom money is owed 2.Equity of the owner Liability – An amount owed by a business Owner’s Equity – The amount remaining after the value of all liabilities is subtracted from the value of all assets Accounting Equation – An equation showing the relationship among assets, liabilities, and owner’s equity (Before a business starts, its accounting equation would show all zeros.)

WORK TOGETHER 1-1 Completing the accounting equation Write the answers to the following problem in the Working Papers. We will go through this first example together. 1. For each line, fill in the missing amount to complete the accounting equation. Assets = Liabilities + Owner’s Equity ? 3,000 8,000 10,000 ? 6,000 63,000 35,000 ?

ON YOUR OWN 1-1 Completing the accounting equation Write the answers to the following problem in the Working Papers. 1. For each line, fill in the missing amount to complete the accounting equation. Assets = Liabilities + Owner’s Equity 30,000 ? 13,000 ? 60,000 20,000 51,000 25,000 ?

APPLICATION PROBLEM 1-1 Pg. 19 in textbook – complete in your Working Papers

1-2 RECEIVING CASH Transaction – A business activity that changes assets, liabilities, or owner’s equity Account – A record summarizing all the information pertaining to a single item in the accounting equation  Account Title – the name given to an account  Account balance – the amount in an account Capital – The account used to summarize the owner’s equity in a business ( an owner’s equity account)

RECEIVING CASH Assets =Liabilities +Owner’s Equity CashKim Park, Capital $0 +5,000 $5,000$0$5,000 Transaction 1 – August 1. Received cash from owner as an investment, $5,000.00

PAYING CASH Assets=Liabilities +Owner’s Equity Cash +Supplies +Prepaid = Insurance Kim Park, Capital $5, $ $0 $5,000 $4,725 -1,200 $275$0 +1,200 +5,000 $3,525$275$1,200$0$5,000 Transaction 2 – August 3. Paid cash for supplies, $ Transaction 3 – August 4. Paid cash for insurance, $1,200.00

TRANSACTIONS ON ACCOUNT Transaction #4: August 7. Bought supplies on account from Supply Depot, $ Transaction #5: August 11. Paid cash on account to Supply Depot, $ Assets=Liabilities +Owner’s Equity Cash +Supplies +Prepaid = Insurance Accts. Pay. – Supply DepotKim Park, Capital $3,525$ $1,200$ $5,000 $3, $775$1,200$ $5,000 $3,225$775$1,200$200$5,000

WORK TOGETHER 1-2 Determining how transactions change an accounting equation Write the answers to the following problem in the Working Papers. We will go through this example together. 1. For each transaction, place a (+) in the appropriate column if the classification is increased. Place a minus (-) in the appropriate column if the classification is decreased. Transactions: 1. Bought supplies on account 2. Received cash from owner as an investment 3. Paid cash for insurance 4. Paid cash on account Trans. No.Assets =Liabilities +Owner’s Equity

ON YOUR OWN1-2 Determining how transactions change an accounting equation Write the answers to the following problem in the Working Papers. We will go through this example together. 1. For each transaction, place a (+) in the appropriate column if the classification is increased. Place a minus (-) in the appropriate column if the classification is decreased. Transactions: 1. Received cash from owner as an investment 2. Bought supplies on account 3. Paid cash for supplies 4. Paid cash for insurance 5. Paid cash on account Trans. No.Assets =Liabilities +Owner’s Equity

APPLICATION PROBLEM 1-2 Pg. 19 in Text book, complete in your Working Papers

1-3 REVENUE TRANSACTIONS Revenue – An increase in owner’s equity resulting from the operation of a business  Transaction #6 – August 12. Received cash from sales, $ Sale on Account – A sale for which cash will be received at a later date  Transaction #7 – August 12. Sold services on account to Oakdale school, $ Assets=Liabilities +Owner’s Equity Cash +Accts. Rec. + Oakdale School Supplies +Prepaid = Insurance Accts. Pay. + Supply Depot Kim Park, Capital $3, $0$775$1,200$200$5, (revenue) $3,520$ $775$1,220$200$5, (revenue) $3,520$350$775$1,200$200$5,645 Total of Left Side: $ $350 +$775 + $1200 = $5,845Total of Right Side: $200 + $5645 = $5,845

EXPENSE TRANSACTIONS Expense – A decrease in owner’s equity resulting from the operation of a business  Transaction #8 – August 12. Paid cash for rent, $  Transaction #9 – August 12. Paid cash for telephone bill, $40.00 Assets=Liabilities +Owner’s Equity Cash +Accts. Rec. + Oakdale School Supplies +Prepaid = Insurance Accts. Pay. + Supply Depot Kim Park, Capital $3, $350$775$1,200$200$5, (expense) $3, $350$775$1,220$200$5, (expense) $3,180$350$775$1,200$200$5,305 Total of Left Side: $ $350 + $775 + $1200 = $5,505Total of Right Side: $200 + $5305 = $5,505

OTHER CASH TRANSACTIONS Received Cash on Account  Transaction #10 – August 18. Received cash on account from Oakdale School, $ Withdrawal – Assets taken out of a business for the owner’s personal use  Transaction #11 – August 18. Paid cash to owner for personal use, $ Assets=Liabilities +Owner’s Equity Cash +Accts. Rec. + Oakdale School Supplies +Prepaid = Insurance Accts. Pay. + Supply Depot Kim Park, Capital $3, $ $775$1,200$200$5,305 $ $150$775$1,220$200$ (withdrawal) $3255$150$775$1,200$200$5180 Total of Left Side: $ $150 + $775 + $1200 = $5,380Total of Right Side: $200 + $5180 = $5,380

WORK TOGETHER 1-3 Write the answers to the following problem in the Working Papers. We will go through this first example together. Place a plus (+) in the appropriate column if the account is increased. Place a minus (-) in the appropriate column if the account is decreased. Transactions: 1. Received cash from sales 2. Sold services on account to Bowman Company 3. Paid cash for telephone bill 4. Received cash on account from Bowman Company. 5. Paid cash to owner for personal use. Trans. No. Asset s =Liabilities + Owner’ s Equity Cash +Accts. Rec + Bowman Co. Supplies +Prepaid = Insurance Accts. Pay – Maxwell Co. Susan Sanders, Capital

ON YOUR OWN1-3 Write the answers to the following problem in the Working Papers. We will go through this first example together. Place a plus (+) in the appropriate column if the account is increased. Place a minus (-) in the appropriate column if the account is decreased. Transactions: 1. Sold services on account to Navarro Company. 2. Received cash from sales 3. Received cash on account from Navarro Company. 4. Paid cash to owner for personal use. 5. Paid cash for rent. Trans. No. Asset s =Liabilities + Owner’ s Equity Cash +Accts. Rec + Navarro Co. Supplies +Prepaid = Insurance Accts. Pay – Barrett Co. Vincent Orr, Capital

APPLICATION PROBLEM 1-3 Pg. 20 in text book. Complete in your Working Papers Finished? Work on the 1-4 Mastery Problem and complete the Study Guide at the beginning of the chapter in the workbook.