1. What is Accounting?
1-1

2. “The Language of Business”
Accounting: planning, recording, analyzing, and interpreting financial info
Accounting System: a planned process of providing financial info that will be useful to management
Accounting Records: organized summaries of a business’s financial activities

3. Who Uses Accounting? Business owners Managers Accounting personnel
Investors
Bankers
Individuals

4. What Can Inaccurate Accounting Records Lead To?
Business failure
Bankruptcy
Poor business decisions

5. TechKnow Consulting(pg3)
Service Business: one that performs an activity for a fee
Proprietorship: a business owned by one person
GAAP Concept
Business Entity:
Financial information is recorded and reported separately from the owner’s financial info

6. Types of Accounts Asset: Equities: Anything of value that is owned
Financial rights to the assets of a business
2 types:
Liabilities
An amount owed by a business
Owner’s Equity
The owner’s right to the assets
Amount remaining after the value of the liabilities is subtracted from the value of all the assets

7. Assets = Liabilities + Owner’s Equity
Accounting Equation
Shows the relationship among assets, liabilities, and owner’s equity
Assets = Liabilities + Owner’s Equity
The Accounting Equation MUST be in BALANCE to be correct.

8. How Business Activities Change the Accounting Equation
1-2

9. Vocab
Transaction: activity that changes assets, liabilities, or owner’s equity
EX paying cash for insurance
After each accounting equation must remain in balance!!!!
Account: a record summarizing all the information about 1 item in the accounting equation
Cash, Prepaid Insurance, Acct. Pay.-Joe’s Movie House

10. More Vocab Account Title: the name given to an account
Account Balance: the amount in the account
Capital: the account used to summarize the owner’s equity in a business
Owner’s Name, Capital

11. GAAP
Unit of Measure: Business transactions are stated in numbers that have common values; that is using a common unit of measure
Example Pg 10
$ to $
NO hours to $

12. Common Business Transactions
Receiving Cash
Aug 1--Received cash from owner as an investment, $5,000
Increases Cash, Increases O.E.
Paying Cash
Aug 3--Paid Cash for Supplies, $275
Decrease Cash, Increase supplies
Aug 3--Paid cash for Insurance, $1,200
Decrease Cash, Increase Insurance

13. Transactions on Account
Bought Supplies on Account
Aug 7--Bought supplies on account from the Supply Depot, $500
Increase Supplies
Increase Supply Depot
Paid Cash on Account
Aug 11--Paid cash on account to Supply Depot, $300
Decrease Cash
Decrease Supply Depot

14. How Transactions Change Owner’s Equity in an Accounting Equation
Lesson 1-3

15. Vocab
Revenue—increase in owner’s equity resulting from the operation of a business
Sale on account—sale for which cash will be received at a later date (charge sale)
Expense—decrease in owner’s equity resulting from the operation of a business
Withdrawal—assets taken out of the business for the owner’s personal use

16. GAAP Concept Realization of Revenue:
Revenue is recorded at the time goods and services are sold, regardless of when paid.
--sales on account

17. Revenue Transactions Received Cash from Sales Sold Services on Account
Aug. 12, Received cash from sales, $295
Increase cash
Increase O.E.
Sold Services on Account
Aug. 12, Sold services on account to Oakland School, $350.
Increase Accts. Rec.
Increase O.E.

18. Expense Transactions
Paid cash for rent, telephone bill, advertising, etc.
Aug. 12, Paid cash for rent, $300
Decrease cash
Decrease O.E.

19. Other Cash Transactions
Received Cash on Account
Aug. 12, Received cash on account from Oakdale school
Increase cash
Decrease Accts. Rec.
Paid cash to Owner for Personal Use
Aug. 12, Paid cash to owner for personal use, $125
Decrease cash
Decrease O.E.