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Published byCamilla Newman Modified over 9 years ago
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Chapter 1 Starting a Proprietorship: Changes that Affect the Accounting Equation
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1.1 Accounting in Action
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What is Accounting Accounting = Language of Business Inaccurate Records= Failure Accounting-Process of planning, recording, analyzing, and interpreting financial info
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Accounting System- A planned process designed to compile financial data and summarize the results in accounting records and reports Financial Statements-Summarize the financial condition and operations of a business
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Accounting in Personal Life Personal Financial Data Sheet Net Worth Statement- Shows what an individual owns, what an individual owes, and the difference between the two Asset- Anything of value that you own Liability- An amount owed
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Personal Net Worth- Difference between personal assets and personal liabilities Net Worth could also be called equity Equity-Difference between assets and liabilities
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Total Assets-Total Liabilities=Equity (Net Worth)
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Personal Net Worth Statement Heading Assets Liabilities Net Worth Double Rule= Amount is total $ are NOT used
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Ethics in Business Ethics-The principles of right and wrong that guide an individual in making decisions Business Ethics- Use of ethics in making business decisions
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1.2 How Business Activities Change the Accounting Equation
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The Business-Delgado Web Services Service Business-Performs an activity for a fee Proprietorship-Business owned by one person Business Plan-Formal written document that describes the nature of a business and how it will operate
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Accounting Standards and Rules GAAP-Generally Accepted Accounting Principles Concept: Unit of Measurement-In U.S. all accounting records in $ Concept: Business Entity-Business records separate from personal records
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The Accounting Equation Assets= Liabilities + Owner’s Equity Left Right Side Side EQUATION ALWAYS STAYS IN BALANCE!
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Any time a business spends $, receives $, or owes $ it is a business activity Transaction-Any business activity that changes assets, liabilities or owner’s equity Account-A record that summarizes all the transactions pertaining to a single item in the accounting equation Account Title-Name given to account Account Balance-The difference between the increases and decreases in an account
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Capital Account-An account used to summarize the owner’s equity in a business Creditor- A person or business to whom a liability is owed
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1.3 How Transactions Change Owner’s Equity in an Accounting Equation
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Transactions Affecting Owner’s Equity Revenue- An increase in equity resulting from the sale of goods or services Sale on Account- A sale for which payment will be received at a later date Concept: Realization of Revenue: Revenue is recorded at the time goods or services are sold
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Expense- The cost of goods or services used to operate a business Withdrawals- Assets taken from the business for the owner’s personal use
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Owner’s Equity + Revenue - Expenses - Withdrawals
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