1. Chapter 2 Terms & Notes Service Business-A business that performs an activity for a fee. Proprietorship-A business owned by one person. Asset-Anything owned. Equities-Financial rights to the assets of a business. Liabilities-A 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.

2. Terms 2 & Notes Transaction-A business activity that changes assets, liabilities, or owner’s equity. Account-A record summarizing all 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.

3. Terms 2 and Notes Capital-The account used to summarize the owner’s equity in the business. Balance Sheet-A financial statement that reports assets, liabilities, and owner’s equity on a specific date. A business has two types of equities--- liability & Owner’s Equity.

4. Notes 2 Accounting Equation--- Assets=Liabilities+Owner’s Equity(capital) Summary of how Transactions Change the accounting equation: –1.Each transaction changes at least two accounts in the accounting equation. –2. When all the changes occur on one side of the accounting equation, increases on that side must be matched by decreases on the same side.

5. Notes 2 –3.When a transaction increases one side of the accounting equation, the other side of the equations must also be increased by the same amount. –4.When a transaction decreases one sided of the accounting equations, the other side of the equations must also be decreased by the same amount.

6. Steps in Preparing a Balance Sheet 1.Heading-Name of Business, Type of Statement, Date or Fiscal Period 2.Prepare Assets Section. 3.Prepare Liabilities Section 4.Prepare Owner’s Equity Section. 5.Determine if Balance Sheet is in Balance before any further work(A=L+OE). 6.Complete and Double Rule Balance Sheet

7. Notes 2 Spell out words in full is space allows otherwise abbreviate. Double ruled lines mean totals are verified and correct. Single ruled lines mean items need to be added or subtracted.

8. Notes 2 Account Numbers –100=Assets –200=Liabilities –300=Owner’s Equity –400=Revenue –500=Expense