1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-1 The Accounting Equation

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning WHAT IS ACCOUNTING? Accounting is the language of business Organized summaries of a business’s financial activities are called accounting records Accounting forms and reports are prepared by many individuals in a business Accounting knowledge is used to understand the information provided in the accounting reports Financial reports that summarize the financial condition and operations of a business are called financial statements These statements are used to make business decisions Failure to understand accounting information can result in poor business decisions Inaccurate accounting records often contribute to business failure and bankruptcy 2 LESSON 1-1

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning THE BUSINESS A service business is a business that performs an activity for a fee. A business owned by on person is called a proprietorship (aka sole proprietorship) ACCOUNTING CONCEPT: Business Entity When a business’s financial information is recorded and reported separately from the owner’s personal financial information 3 LESSON 1-1

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning THE ACCOUNTING EQUATION Anything of value that is owned is called an asset Assets have value because they can be used to acquire other assets or to operate a business Financial rights to the assets of a business are called equities Businesses have two types of equity: 1.Equity of those to whom money is owed Ex: the business owes money to a person/company, etc. An amount owed by a business is called a liability 2.Equity of the owner Therefore, the owner (in a sole proprietorship) gets to decide how assets will be used The amount remaining after the value of all liabilities is subtracted from the value of all assets is called owner’s equity 4 LESSON 1-1

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning THE ACCOUNTING EQUATION The relationship among assets, liabilities, and owner’s equity can be written as an equation. The accounting equation is shown below: 5 LESSON 1-1 page 8 The accounting equation must always be in balance The total amounts on the left side must always equal the total amounts on the right side

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TechKnow Consulting Kim Park is starting her own business, TechKnow Consulting Helping to set up and troubleshoot computer networks TechKnow Consulting Rent office space Rent the equipment needed to troubleshoot netowrk problems Since this is a new business, Kim must design an accounting system to keep the business’s accounting records These records should be kept separate from the owner’s personal financial records Kim enjoys the benefits of her own business: Control over her daily schedule Being her own boss Keeping her own records and seeing that she is making money monthly 6 LESSON 1-1

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TechKnow Consulting, cont. TechKnow Consulting will own items such as cash and supplies that will be used to conduct daily operations Ex: TechKnow will use cash to buy supplies for the business TechKnow will then use the asset (supplies) in the operation of the business TechKnow may also buy some supplies and agree to pay for the supplies at a later date Liability 7 LESSON 1-1

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 1-1 TERMS REVIEW accounting accounting system accounting records financial statements service business proprietorship asset equities liability owner’s equity accounting equation ethics business ethics page 9

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning WORK TOGETHER 1-1 (pg. 9) Completing the accounting equation Write the answers to the following problem in the Working Papers. 1.For each line, fill in the missing amount to complete the accounting equation 9 LESSON 1-1 11,000 4,000 28,000

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 1-1 PRACTICE Complete the On Your Own 1-1 on page 9 Complete the Application Problem 1-1 online www.glhsaccounting1.blogspot.com 10 LESSON 1-1