Chapter 1 Starting a Proprietorship

Terms that you need to know  Accounting  Planning recording analyzing and interpreting financial information  Accounting System  A process for providing financial information that will be useful to management

 Accounting Records  Organized summaries of a business’s financial activities  Assets  Anything of value that is owned  Cash Insurance  Supplies  Equities  Financial rights to the assets of a business  Liabilities  An amount owed by a business  Any business that we buy something from  Owner’s Equity  The amount remaining after the value of all liabilities subtracted from the value of all assets  (Owner’s Name), Capital Account

The accounting equation  Property = Credit+ Equity  Assets = Liability + Owner’s Equity $15,000 $8000 $7000

How the accounting equation changes  Assets = Liability + Owner’s Equity

More terms  Transaction  A business activity that changes asset’s, liabilities, or owner’s equity  Account  Each transaction effects at least 2 accounts  Account Title  Each account has its own title

 Each account has a ACCOUNT BALANCE  Each balance should be a positive number  Capital Account  The account that summarizes the owner’s equity

Work together page 9 Now you do On your own………….

Section 2  How business activities change the accounting equation

Remember the accounts ASSETS=Liabilities + Owners Equity Cash Supplies Prepaid Insurance Accts Pay – Name of Company Name of Owner, Capital

Transaction #1 August 1. Received cash from owner as an investment, $10,000.  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Do Assets = Liabilities + Owner’s Equity?

Transaction #2 August 3. Paid cash for Supplies $1577.  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Supplies $1577 Do Assets = Liabilities + Owner’s Equity?

Transaction #3 August 4 Paid cash for insurance $1,200  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Supplies $1577 Prepaid Ins $1200 $ ,000 Do Assets = Liabilities + Owner’s Equity?

Transaction #4 August 7 Bought supplies on account from Ling Music Supplies $2,720  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Supplies $1577 Prepaid Ins $1200 $2720 Acct Pay Ling Music Supplies Do Assets = Liabilities + Owner’s Equity?

Transaction #5 August 11. Paid cash on account to Ling Music Supplies $1360  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Supplies $1577 Prepaid Ins $1200 $2720 Acct Pay Ling Music Supplies Do Assets = Liabilities + Owner’s Equity? $1360

Work Together Page 13

 Now work on your own on page 12  Please check the answers with me or the key in the back of the room.

Chapter 1 Section 3 Preparing a Balance Sheet

Transaction #5 August 11. Paid cash on account to Ling Music Supplies $1360  Assets = Liability + Owner’s Equity Cash Barbara Trevino, Cap $10,000 Supplies $1577 Prepaid Ins $1200 $2720 Acct Pay Ling Music Supplies Do Assets = Liabilities + Owner’s Equity? $1360 $5863 $4297 $1200 $1360 $10000

How Transactions Change Owner’s Equity in an Accounting Equation  Revenue – is the amount of money the company generates from the sale of goods.

Received Cash from Sales  Transaction #6  August 12 Received cash from sales, $325

Received Cash from Sales  Transaction #7  August 12, sold services on account to Kids time $200

Received Cash from Sales  Transaction #7  August 12, sold services on account to Kids time $200

Received Cash from Sales  Transaction #8  August 12 Paid cash for rent, $250.00

Received Cash from Sales  Transaction #9  August 12 Paid cash for telephone bill,$45.00

Received Cash from Sales  Transaction #10  August 12 Received cash on account from Kids Time  $100.

Received Cash from Sales  Transaction #11  August 12. Paid cash to owner for personal use $100.00

Review of Chapter 1  Definition of Accounting  Defined important vocab terms  Asset  Liability  Owners Equity  Discussed the Accounting Equation  Saw the relationship between the Accounting Equation and Transactions  Learned how to create a balance sheet

Can you do this transaction  Received Cash from owner, Mr. Parks as investment $10,000  Bought supplies with Cash $2000  Bought supplies on Account – Mr. Prosser Supplies $1000  Paid cash on Account – Mr. Prosser $500

Assets = Liabilities + Owners Eq CASH Mr. Parks, Capital $10,000 Supplies $2000 $8000 $2000 $10,000 $1000 Accts Pay- Mr. Parks $1000 $8000 $3000$1000$10,000 $500 $7500$3000$500 $10,000