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Chapter 1 2010

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Dawn James

The document discusses accounting concepts including assets, liabilities, owner's equity, and how transactions affect the accounting equation. It defines assets as things of value owned by a business, liabilities as amounts owed, and owner's equity as the owner's claim against assets. Transactions are analyzed by identifying which accounts are affected, whether they are assets, liabilities, or owner's equity, and if each account increases or decreases. Keeping accurate accounting records helps businesses make good decisions.

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Chapter 1 Starting a Proprietorship Service Business - Techknow Consulting Chapters 1 - 8
Today’s Topics What is an Asset, Liability, OE? Account Classification – Assets, Liabilities, OE Accounting Equation Analyze transactions that occur in a business and how they affect the accounting equation
Chart of Accounts 100 Assets 200 Liabilities 300 Owner’s Equity 400 Revenue 500 Expenses
Today ’ s Objectives List and define the three elements of accounting - assets, liabilities and owner’s equity Classify accounts as either, assets, liabilities, or owner’s equity Analyze transactions and explain how they affect the accounting equation
What Do Accountants Do? Analyze business activities, and see how they affect the business Organize financial information so that it is useful Managers, owners, investors, government agencies, and others use accounting information as the basis for making business decisions
Accounting Accurate accounting records contribute to a business’ success and helps to avoid failure and bankruptcy. Therefore, there needs to be some sort of accounting system in place. Failure to understand accounting - poor business decisions.
Accounting is the Language of Business
GAAP Generally Accepted Accounting Principals Standards and rules that accountants follow while recording and reporting financial activities SEC - Securities and Exchange Commission - establish GAAP FASB - Financial Accounting Standards Board - is the organization that sets the accounting standards
Think for a moment about all the activity completed by a local business
Organize Numbers Accounting System - planned process for providing financial information that will be useful to management Organized summaries of a business’s financial activities are called accounting records .
The financial position of a company is measured by the following items: 1. Assets (what the business owns) 2. Liabilities (what the business owes to others) 3. Owner’s Equity (the difference between assets and liabilities – what the owner owns)
Accounting Elements Assets Liabilities Owner’s Equity
Assets Anything of value that a business owns - things of monetary value Cash Supplies Prepaid Insurance Accounts Receivable Petty Cash
Economic Resources - Assets A business obtains its assets by either: Owner Investing personal money or goods Owner may borrow from others Liability Creditor
Liability An amount owed Creditor has legal claim against the assets of the business until the business pays its debts.
Liability Assets obtained by borrowing from others Creditor - one who debt is owed Accounts Payable
Owner’s Equity Definition : Is the financial interest of the owner in a business The owner’s claim against the assets The difference between the total assets owned and the total liabilities owed.
Review Assets Liability Owner’s Equity
Classify the account!
Supplies Asset
Capital Owner’s Equity
Prepaid Insurance Asset
Accounts Payable, Mrs. Havice Liability
Accounting Equation Assets = Liabilities + Owner’s Equity Property = creditors financial claim + owner’s financial claim Must ALWAYS Balance!
Assets = Liabilities + Owner’s Equity Must ALWAYS Balance!
Financial rights to the assets of a business are called equities A business has two types of equities Equity to those whom money is owed Equity of the owner
Work Together and On Your Own Page 9
Assets Cash Supplies Prepaid Insurance Accounts Receivable Petty Cash Anything of value that is OWNED
Handout Find the Missing Number
How Business Activities Change the Accounting Equation Section 1-2 Page 10
Analyze how transactions affect accounts in the accounting equation Objective
Business activities change the amounts in the accounting equation
Transaction Is a business activity that changes assets, liabilities, or owner’s equity
Examples of Transactions Received cash from owner as an investment Paid cash for supplies Paid cash for insurance Bought supplies on account from Supply Depot Paid cash on account to Supply Depot
Examples of Transactions Received cash from sales Sold services on account to Oakdale School Paid cash for rent Paid cash for telephone bill Received cash on account from Oakdale School Paid cash to owner for personal use
To keep track of transactions businesses use accounts
Account is a record summarizing all the information pertaining to a single item in an accounting equation All assets, liabilities and OE have their own account
Capital The account used to summarize the owner’s equity in a business
The number of accounts needed by a business will vary Capital Accounts Payable Cash Accounts Receivable Supplies Prepaid Insurance Petty Cash Owner’s Equity Liabilities Assets
When a business transaction occurs, an accounting clerk analyzes the transaction to see how it affects each part of the accounting equation.
First 3 Steps in Analyzing a Transaction Identify accounts affected Classify each account (Asset, Liability, OE) Is each account increased or decreased Make sure the accounting equation remains in balance
Before Business Starts Assets = Liabilities + Owner’s Equity $0 = $0 + $0
Received cash from owner as an investment, $10,000. What two accounts are affected? Cash and Capital Account classification? Asset Owner’s Equity Increased or decreased? Increased Increased
Paid cash for supplies, $1,577. What two accounts are affected? Cash and Supplies Account classification? Asset Asset Increased or decreased? Decreased Increased
Paid cash for insurance, $1,200. What two accounts are affected? Cash and Prepaid Insurance Account classification? Asset Asset Increased or decreased? Decreased Increased
Bought supplies on account from Wyatt Industries, $2,720.00 What two accounts are affected? Supplies and Wyatt Ind. Accounts Payable Account classification? Asset Liability Increased or decreased? Increased Increased
Paid cash on account to Wyatt Industries, $1,360.00. What two accounts are affected? Cash and Wyatt Ind. Accounts Payable Account classification? Asset Liability Increased or decreased? Decreased Decreased
Work Together And On Your Own Page 13
Can you? List and define the three elements of accounting Classify accounts as either, assets, liabilities, or owner’s equity Analyze transactions and explain how they affect the accounting equation
Assignment 1-1 1-2

More Related Content

Chapter 1 2010

  • 1. Chapter 1 Starting a Proprietorship Service Business - Techknow Consulting Chapters 1 - 8
  • 2. Today’s Topics What is an Asset, Liability, OE? Account Classification – Assets, Liabilities, OE Accounting Equation Analyze transactions that occur in a business and how they affect the accounting equation
  • 3. Chart of Accounts 100 Assets 200 Liabilities 300 Owner’s Equity 400 Revenue 500 Expenses
  • 4. Today ’ s Objectives List and define the three elements of accounting - assets, liabilities and owner’s equity Classify accounts as either, assets, liabilities, or owner’s equity Analyze transactions and explain how they affect the accounting equation
  • 5. What Do Accountants Do? Analyze business activities, and see how they affect the business Organize financial information so that it is useful Managers, owners, investors, government agencies, and others use accounting information as the basis for making business decisions
  • 6. Accounting Accurate accounting records contribute to a business’ success and helps to avoid failure and bankruptcy. Therefore, there needs to be some sort of accounting system in place. Failure to understand accounting - poor business decisions.
  • 7. Accounting is the Language of Business
  • 8. GAAP Generally Accepted Accounting Principals Standards and rules that accountants follow while recording and reporting financial activities SEC - Securities and Exchange Commission - establish GAAP FASB - Financial Accounting Standards Board - is the organization that sets the accounting standards
  • 9. Think for a moment about all the activity completed by a local business
  • 10. Organize Numbers Accounting System - planned process for providing financial information that will be useful to management Organized summaries of a business’s financial activities are called accounting records .
  • 11. The financial position of a company is measured by the following items: 1. Assets (what the business owns) 2. Liabilities (what the business owes to others) 3. Owner’s Equity (the difference between assets and liabilities – what the owner owns)
  • 12. Accounting Elements Assets Liabilities Owner’s Equity
  • 13. Assets Anything of value that a business owns - things of monetary value Cash Supplies Prepaid Insurance Accounts Receivable Petty Cash
  • 14. Economic Resources - Assets A business obtains its assets by either: Owner Investing personal money or goods Owner may borrow from others Liability Creditor
  • 15. Liability An amount owed Creditor has legal claim against the assets of the business until the business pays its debts.
  • 16. Liability Assets obtained by borrowing from others Creditor - one who debt is owed Accounts Payable
  • 17. Owner’s Equity Definition : Is the financial interest of the owner in a business The owner’s claim against the assets The difference between the total assets owned and the total liabilities owed.
  • 18. Review Assets Liability Owner’s Equity
  • 23. Accounts Payable, Mrs. Havice Liability
  • 24. Accounting Equation Assets = Liabilities + Owner’s Equity Property = creditors financial claim + owner’s financial claim Must ALWAYS Balance!
  • 25. Assets = Liabilities + Owner’s Equity Must ALWAYS Balance!
  • 26. Financial rights to the assets of a business are called equities A business has two types of equities Equity to those whom money is owed Equity of the owner
  • 27. Work Together and On Your Own Page 9
  • 28. Assets Cash Supplies Prepaid Insurance Accounts Receivable Petty Cash Anything of value that is OWNED
  • 29. Handout Find the Missing Number
  • 30. How Business Activities Change the Accounting Equation Section 1-2 Page 10
  • 31. Analyze how transactions affect accounts in the accounting equation Objective
  • 32. Business activities change the amounts in the accounting equation
  • 33. Transaction Is a business activity that changes assets, liabilities, or owner’s equity
  • 34. Examples of Transactions Received cash from owner as an investment Paid cash for supplies Paid cash for insurance Bought supplies on account from Supply Depot Paid cash on account to Supply Depot
  • 35. Examples of Transactions Received cash from sales Sold services on account to Oakdale School Paid cash for rent Paid cash for telephone bill Received cash on account from Oakdale School Paid cash to owner for personal use
  • 36. To keep track of transactions businesses use accounts
  • 37. Account is a record summarizing all the information pertaining to a single item in an accounting equation All assets, liabilities and OE have their own account
  • 38. Capital The account used to summarize the owner’s equity in a business
  • 39. The number of accounts needed by a business will vary Capital Accounts Payable Cash Accounts Receivable Supplies Prepaid Insurance Petty Cash Owner’s Equity Liabilities Assets
  • 40. When a business transaction occurs, an accounting clerk analyzes the transaction to see how it affects each part of the accounting equation.
  • 41. First 3 Steps in Analyzing a Transaction Identify accounts affected Classify each account (Asset, Liability, OE) Is each account increased or decreased Make sure the accounting equation remains in balance
  • 42. Before Business Starts Assets = Liabilities + Owner’s Equity $0 = $0 + $0
  • 43. Received cash from owner as an investment, $10,000. What two accounts are affected? Cash and Capital Account classification? Asset Owner’s Equity Increased or decreased? Increased Increased
  • 44. Paid cash for supplies, $1,577. What two accounts are affected? Cash and Supplies Account classification? Asset Asset Increased or decreased? Decreased Increased
  • 45. Paid cash for insurance, $1,200. What two accounts are affected? Cash and Prepaid Insurance Account classification? Asset Asset Increased or decreased? Decreased Increased
  • 46. Bought supplies on account from Wyatt Industries, $2,720.00 What two accounts are affected? Supplies and Wyatt Ind. Accounts Payable Account classification? Asset Liability Increased or decreased? Increased Increased
  • 47. Paid cash on account to Wyatt Industries, $1,360.00. What two accounts are affected? Cash and Wyatt Ind. Accounts Payable Account classification? Asset Liability Increased or decreased? Decreased Decreased
  • 48. Work Together And On Your Own Page 13
  • 49. Can you? List and define the three elements of accounting Classify accounts as either, assets, liabilities, or owner’s equity Analyze transactions and explain how they affect the accounting equation