1. Chapter 1: Starting a Proprietorship OBJECTIVES:
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, owner’s equity, and demonstrate their relationships in the accounting equation
Analyze how transactions related to started a service business organized as a proprietorship affect accounts in the accounting equation
Prepare a balance sheet for a service business organized as a proprietorship from information in an accounting equation

2. What is Accounting?
Planning, recording, analyzing, and interpreting financial information
Accounting system: planned process for providing financial info that will be useful to management
Accounting records: organized summaries of a business’s financial activities
Balance sheet, income statements, payroll, statement of owner’s equity, other financial statements

3. Types of Business:
Service business: business that performs a service for a fee
Merchandise business: provides a good to consumers
Which type is Encore Music?

4. Classification of Business Ownership
Proprietorship: business owned by one person
Partnership: business in which 2 or more persons combine their assets and skills
Corporation: organization with legal rights of a person and which may be owned by many persons
Which type is Encore Music?
Why might someone choose one form over the others? Why NOT?

5. Business Entity
A business’ financial information is recorded and reported separately from the owner’s personal financial information
ex) home, car, personal belongings
Separate checking accounts
VERY important for sole proprietorship

6. The Accounting Equation
Assets: anything of value that is owned
cash and supplies to conduct daily business
can be used to acquire other assets (supplies) or to operate business
Assets = Equities
Equities: financial rights to the assets of a business
_____________________________________________
2 Types of Equities:
Liability: amount owed by a business
Equity of those to whom money is owed.
Owner’s equity - amount remaining after value of all liabilities is subtracted from value of all assets
Equity of the owner

7. The Accounting Equation:
Assets = Liabilities + Owner’s Equity (OE)
I Owe
You
Billing
Assets - Liabilities = Owner’s Equity (OE)

8. THE ACCOUNTING EQUATION
Lesson 01-1 (GJ)
THE ACCOUNTING EQUATION
The Equation must ALWAYS be in balance!!!
Lesson 1-1, page 7

9. TERMS REVIEW accounting accounting system accounting records
service business
proprietorship
asset
equities
liability
owner’s equity
accounting equation
TO DO:
Audit your understanding, pg 8
Work Together
On your own
Lesson 1-1, page 8

10. ASSETS = LIABILITIES + OWNER’S EQUITY
1-1 WORK TOGETHER, p.8
ASSETS = LIABILITIES OWNER’S EQUITY
3,000
8,000
10,000
6,000
63,000
35,000
70,000
22,000
50,000
58,000
17,500
2,250
40,250
14,250
100,000
23,456
12,000

11. ASSETS = LIABILITIES + OWNER’S EQUITY
1-1 WORK TOGETHER, p.8
ASSETS = LIABILITIES OWNER’S EQUITY
11,000
3,000
8,000
10,000
4,000
6,000
63,000
35,000
28,000
70,000
22,000
48,000
108,000
50,000
58,000
17,500
2,250
15,250
40,250
26,000
14,250
100,000
23,456
76,544
12,000

12. ASSETS = LIABILITIES + OWNER’S EQUITY
1-1 WORK TOGETHER, p.8
ASSETS = LIABILITIES OWNER’S EQUITY
23,000
13,000
70,000
30,000
48,000
25,000
55,000
10,500
412,000
618,000
5,500
1,250
64,000
38,000
88,000
29,000
90,000
45,750

13. ASSETS = LIABILITIES + OWNER’S EQUITY
1-1 WORK TOGETHER, p.8
ASSETS = LIABILITIES OWNER’S EQUITY
23,000
10,000
13,000
100,000
70,000
30,000
48,000
25,000
55,000
44,500
10,500
1,030,000
412,000
618,000
5,500
1,250
4,250
64,000
26,000
38,000
117,000
88,000
29,000
90,000
45,750

14. Chapter 1-2: How Business Activities Change the Accounting Equation
Transaction: business activity that changes assets, liabilities, and OE
Ie: Any time you buy or sell something
A transaction always affects AT LEAST TWO accounts.
ALWAYS:
Read the transaction
Identify the accounts
Classify the accounts

15. Unit of Measurement
An accounting concept that states numbers have a common value - a common unit of measurement.
Followed for consistency and comparisons
Example: In the U.S. amounts are stated in dollars, in Mexico it’s pesos.

16. Accounts
Account: record summarizing all info pertaining to a single item in the equation
Account title: name given to an account
Ie: One asset account is called ‘Cash’
Cash tells how much money the business has available
Account Balance: the amount in an account
Capital: account used to summarize the owner’s equity in a business

17. Review Account Titles: Assets = Liabilities + Owner’s Equity
Asset Accounts:
CASH
SUPPLIES
Pre-PAID INSURANCE (Insurance Premiums)
Liabilities Accounts:
ACCOUNTS PAYABLE
A/P (ie: a bill)
Owner’s Equity
CAPITAL

18. Analysis a Transaction
Ask these three questions:
What accounts are affected?
What is the account classification?
How is the account affected - or + ?
EX) Received $10,000 cash as an Investment
Cash and Capital
Asset / Owner’s Equity
Cash + / Capital +

19. Lesson 01-1 (GJ)
RECEIVING CASH
Transaction 1 August 1. Received cash from owner as an investment, $10,
Lesson 1-2, page 9

20. Transaction 2 August 3. Paid cash for supplies, $1,577.00.
PAYING CASH
Transaction 2 August 3. Paid cash for supplies, $1,
Transaction 3 August 4. Paid cash for insurance, $1,
Lesson 1-2, page 10

21. TRANSACTIONS ON ACCOUNT
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,
Lesson 1-2, page 11

22. Helpful Reminders
***THE TRANSACTION does NOT ALWAYS require that an amount be recorded on both sides of the equation.***
***The same amount may be added or subtracted from the same side and still be in balance***

23. TERMS REVIEW transaction account account title account balance capital
TO DO:
Audit your Understanding
Work Together, pg 12
On your own
App prob 1-1, 1-2 – pg. 17
Page 7, 9 in workbook
Lesson 1-2, page 12

24. Make up 5 of your own transactions…
REMEMBER!!!!
When analyzing a transaction…
WHAT IS THE ACCOUNT TITLE? (cash, supplies, prepaid insurance, account payable, capital)
WHICH SIDE OF THE ACCOUNTING EQUATION WILL BE AFFECTED??? 
IS IT AN ASSET? LIABILITY? OWNER’S EQUITY?
HOW IS IT AFFECTED?
DO THE ACCOUNTS INCREASE, DECREASE, STAY THE SAME?
Make up 5 of your own transactions…
On Work Together, pg 3

25. Concept of ‘Going Concern’:
Applied when financial statements are prepared with the expectation that a business will remain in operation indefinitely.

26. Ch 1-3: Reporting Financial Info on a Balance Sheet
Balance sheet: financial statement that reports assets, liabilities, and OE on a specific date
Heading :
Who
What
When
Body of a balance sheet:
3 major sections:
Assets (left side)
Liabilities (right side)
Owner’s Equity (right side)

27. PREPARING A BALANCE SHEET
Lesson 01-1 (GJ)
PREPARING A BALANCE SHEET
1. Write the heading.
2. Prepare the assets section. 1
3. Prepare the liabilities section. 2 3 4
4. Prepare the owner’s equity section. 6 5 7 8
5. Add amounts and compare the totals.
6. Rule single lines after the last account/transaction listed.
7. Write the totals for each column.
8. Rule double lines if the two totals match.
Lesson 1-3, page 14

28. TERMS REVIEW balance sheet TO DO : Audit you Understanding
Work Together, pg 15
On your own
App 1-3, 1-4, 1-5
App 1-3 – Create a balance sheet on pg 16
Cases for Critical Thinking 1, 2, pg 21
Lesson 1-3, page 15

29. Accounting News Article Summary:
EXTRA
Accounting News Article Summary:
Go to nytimes.com, mcall.com, Wall Street Journal (or any news site)
Find TWO articles that are related to accounting.
Write a summary for each including:
Title of article, date, author, website
Accounting terms used in article
Summary of article – one paragraph
Explain how article is related to Accounting

30. True/False Anything that is of value that is owned is called an asset.
Liabilities are listed on the left side of the accounting equation.
An amount owned by a business is called owner’s equity.
A business owned by one person is called a proprietorship.
When supplies are bought on account, Cash is decreased and Supplies is increased in the accounting equation.
When cash is paid for Insurance, two assets are changed on the left side of the accounting equation.

31. 7. When cash is paid on account, one asset is increased, and one liability is decreased in the accounting equation.
8. The left side of the accounting equation must always equal the right side.
9. Owner’s equity is listed on the right side of the balance sheet.
10. Double rules on a balance sheet mean that the totals have been verified as correct.
11. The accounting concept of Business entity is applied when the balance sheet is prepared with the expectation that the business will continue to operate indefinitely
12. The first step in preparing a balance sheet is to complete the assets section.