1. ACCOUNTING 1
Chapter 1

2. The Accounting Equation 1-1
What is accounting?
What does an accountant do?
Why do we need accountants?
Has the poor economy affected accountants’ jobs?

3. Accounting is the Language of business
What is Accounting?
Accounting – planning, recording, analyzing and interpreting financial information
Accounting System – planned process for providing financial information
Accounting Records – organized summaries of financial activities
Financial Statements – financial reports that summarize the financial condition and operations of a business
Accounting is the
Language of business

4. TechKnow Consulting
The business that will be used to illustrate all chapters in Part 1
Service Business – performs an activity for a fee
Proprietorship – business owned by one person
CONCEPT: Business Entity – business financial information is recorded and reported separately from the owner’s personal information.

5. Why do you think more businesses are organized as proprietorships than any other form of business organization?
ADVANTAGES
DISADVANTAGES
Limited resources
Unlimited Liability
Limited expertise
Limited life
Ease of formation
Total control by owner
Profits not shared

6. ASSETS = LIABILTIES + OWNER’S EQUITY
Accounting Equation
ASSETS = LIABILTIES + OWNER’S EQUITY
What is an asset?
Anything of value that is owned by a company
What are some examples of an asset?
What is a liability?
An amount owed by a business
What are some examples of a liability?
What is owner’s equity?
The amount remaining after the value of liabilities is subtracted from the value of assets
Includes revenue and capital

7. Remember!
The accounting equation must always have equal amounts on each side
It is important to keep a business’s financial information separate from the owner’s personal financial information
The accounting equation will be used throughout the study of accounting

8. Practice
Assets = Liabilities + Owner’s Equity 30,000 = ? + 13,000 ? = 60, ,000 51,000 = 25,000 + ?

9. Do Now: Assets = Liabilities + Owner’s Equity ? = 3,000 + 8,000
Work Together 1-1 WB pg. 5
Assets = Liabilities + Owner’s Equity
? = 3, ,000
10,000= ? ,000
63,000= 35, ?
On Your Own 1-1 WB pg. 6

10. How Business Activities Change the Accounting Equation 1-2
What affects the accounting equation?
Transactions
A business activity that changes assets, liabilities, or owner’s equity
What is an Account?
A record summarizing all the information pertaining to a single item in the accounting equation
- the name given to an account is called the Account Title
– the amount in an account is call the Account Balance
It is important to establish the habit of 1) reading the transaction, 2) identifying the accounts, 3) classifying the accounts

11. Received Cash Investment from Owner
Transaction 1: August 1. Received cash from owner as an investment, $5,000.00
Beginning
New Balance
Assets = Liabilities + OE
Kim Park, Capital
Cash $0 $0 $0
+ 5,000
+ 5,000
$5,000
$0 $5,000
The account used to summarize the owner’s equity in a business is called Capital.

12. Paid Cash for Supplies
Transaction 2: August 3, Paid cash for supplies, $275.00
Cash Supplies Capital
Bal $5, $0 $ $5,000
(Sup.)
New
Bal $4, $275 $ $5,000
Assets = Liabilities + OE

13. Paid Cash for Insurance
Transaction 3: August 4, Paid cash for insurance, $1,200.00
Assets = Liabilities + OE
Cash Supplies + Insurance Capital
Bal $4, $ $ $ $5,000
(Ins.) , ,200
New
Bal $3, $ $1, $ $5,000

14. Bought Supplies on Account
Transaction 4: August 7, bought supplies on account from Supply Depot, $500.00
Assets = Liabilities + OE
Cash Supplies Insurance AP - SD Capital
Bal $3, $ $1, $ $5,000 AP
New $3, $ $1, $ $5,000
Accounts Payable – AP – is a liability account – bought “on account”

15. Paid Cash on Account
Transaction 5: August 11, Paid cash on account to Supply Depot, $300.00
Assets = Liabilities + OE
Cash Supplies Insurance AP - SD Capital
Bal $3, $ $1, $ $5,000
Paid
New $3, $ $1, $ $5,000

16. Do Now: Work Together 1-2 WB pg. 7 On Your Own 1-2 WB pg. 8 Trans. No.
Assets =
Liabilities
Owner’s Equity 1. 2. 3. 4.

17. Do Now: On Your Own 1-2 WB pg. 8
Homework: Application Problem 1-2 Text Pg. 19 WB pg. 12
Trans. No.
Assets =
Liabilities
Owner’s Equity 1. + 2. 3.
+, - 4. 5. -

18. How Transactions Change Owner’s Equity in an Accounting Equation 1-3
What is revenue?
Revenue comes from the sale of goods or services (sales)
Revenue is an increase in owner’s equity resulting from the operation of a business
“Received cash” always means an increase in Cash account (asset) and Capital account (owner’s equity)
What is a sale on account?
A sale for which cash will be paid at a later date
“Sold on account” in a transaction statement always means that Accounts Receivable (asset) increases and Capital (owner’s equity) increases
CONCEPT: Realization of Revenue - revenue is recorded at the time of sale, regardless of whether the cash is received at the time or is to be received in the future

19. What is an Expense? What is a Withdrawal?
A decrease in owner’s equity resulting from the operation of a business ex. Rent, phone bills, electric bills, etc.
Expense transactions decrease Capital (owner’s equity) and decrease Cash (asset)
What is a Withdrawal?
Assets taken out of a business for the owner’s personal use, usually Cash but can be other Assets
A withdrawal decreases Capital (owner’s equity) and decreased Cash (asset)
A withdrawal is not an expense because it is not a result of the normal operations of a business
Revenue, Expenses and Withdrawals all result in changes in owner’s equity

20. Revenue Transaction Transaction 6: Received cash from sales, $295
Assets = Liabilities OE
Accts. Rec.
Oakdale Kim Park,
Cash school Supplies Ins. = AP - SD Capital
Bal $3, $ $ $1, $ $5,000
(revenue)
New $3, $ $ $1, $ $5,295

21. Revenue Transaction
Transaction 7: Sold services on account to Oakdale School for
Assets = Liabilities OE
Accts. Rec.
Oakdale Kim Park,
Cash school Supplies Ins. = AP - SD Capital
Bal $3, $ $ $1, $ $5,295
(revenue)
New $3, $ $ $1, $ $5,645

22. Expense Transaction Transaction 8: Aug. 12 Paid cash for rent $300
Assets = Liabilities OE
Accts. Rec.
Oakdale Kim Park,
Cash school Supplies Ins. = AP - SD Capital
Bal $3, $ $ $1, $ $5,645
(expense)
New $3, $ $ $1, $ $5,345

23. Expense Transaction
Transaction 9: Aug. 12 Paid cash for telephone bill $40
Assets = Liabilities OE
Accts. Rec.
Oakdale Kim Park,
Cash school Supplies Ins. = AP - SD Capital
Bal $3, $ $ $1, $ $5,345
(expense)
New $3, $ $ $1, $ $5,305

24. Other Cash Transactions
Transaction 10: Aug. 18 Received cash on account from Oakdale School $200 Transaction 11: Aug. 18 paid cash to owner for personal use $125
Assets = Liabilities OE
Accts. Rec.
Oakdale Kim Park,
Cash school Supplies Ins. = AP - SD Capital
Bal $3, $ $ $1, $ $5,305
New $3, $ $ $1, $ $5,305
(withdrawal)
New $3, $ $ $1, $ $5,180