ACCOUNTING I Chapter 1. WHAT IS ACCOUNTING? Accounting – planning, recording, analyzing, and interpreting financial information Accounting System – A

ACCOUNTING I Chapter 1

WHAT IS ACCOUNTING?

Accounting – planning, recording, analyzing, and interpreting financial information

Accounting System – A planned process for providing financial information that will be useful to management

Accounting Records – Organized summaries of a business’s financial activities

Financial Statements – Financial reports that summarize the financial condition and operations of a business

Service Business – a business that performs an activity for a fee

Proprietorship – a business owned by one person

THE PROPRIETORSHIP

Advantages

Ease of formation

Total Control by the owner

Profits that are not shared

Disadvantages

Limited resources

Unlimited liability

Limited expertise

Limited life

Obligation to follow the laws of both the federal government and the state and city in which the business is formed

THE ACCOUNTING EQUATION Assets = Liabilities + Owner’s Equity

Left side amounts

Right side amounts

THE ACCOUNTING EQUATION Asset – Anything of value that is owned

Equities – Financial rights to the assets of a business1. Equity of those to whom money is owed2. Equity of the owner

Liability – An 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 (Before a business starts, its accounting equation would show all zeros.)

WORK TOGETHER 1-1

Completing the accounting equation

Write the answers to the following problem in the Working Papers. We will go through this first example together.

1. For each line, fill in the missing amount to complete the accounting equation.

Assets = Liabilities + Owner’s Equity

? 3,000 8,000

10,000 ? 6,000

63,000 35,000 ?

ON YOUR OWN 1-1

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.


30,000 ? 13,000

? 60,000 20,000

51,000 25,000 ?

APPLICATION PROBLEM 1-1

Pg. 19 in textbook – complete in your Working Papers

1-2 RECEIVING CASH

Transaction – A business activity that changes assets, liabilities, or owner’s equity

Account – A record summarizing all the 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

Capital – The account used to summarize the owner’s equity in a business ( an owner’s equity account)

RECEIVING CASH


Cash Kim Park, Capital

$0 $0 $0

+5,000 +5,000

$5,000 $0 $5,000

Transaction 1 – August 1. Received cash from owner as an investment, $5,000.00

PAYING CASH


Cash + Supplies +

Prepaid = Insurance

Kim Park, Capital

$5,000-275

$0+275

$0 $0 $5,000

$4,725-1,200

$275 $0+1,200

+5,000

$3,525 $275 $1,200 $0 $5,000

Transaction 2 – August 3. Paid cash for supplies, $275.00Transaction 3 – August 4. Paid cash for insurance, $1,200.00

TRANSACTIONS ON ACCOUNT Transaction #4: August 7. Bought supplies on account from Supply Depot, $500.00

Transaction #5: August 11. Paid cash on account to Supply Depot, $300.00


Cash + Supplies +

Prepaid = Insurance

Accts. Pay. – Supply Depot

Kim Park, Capital

$3,525 $275+500

$1,200 $0+500

$5,000

$3,525-300

$775 $1,200 $500-300

$5,000

$3,225 $775 $1,200 $200 $5,000

WORK TOGETHER 1-2 Determining how transactions change an accounting equation

Write the answers to the following problem in the Working Papers. We will go through this example together.

1. For each transaction, place a (+) in the appropriate column if the classification is increased. Place a minus (-) in the appropriate column if the classification is decreased.

Transactions:

1. Bought supplies on account

2. Received cash from owner as an investment

3. Paid cash for insurance

4. Paid cash on account

Trans. No.

Assets =

Liabilities +

Owner’s Equity

1.

2.

3.

4.

ON YOUR OWN1-2 Determining how transactions change an accounting equation

Write the answers to the following problem in the Working Papers. We will go through this example together.

1. For each transaction, place a (+) in the appropriate column if the classification is increased. Place a minus (-) in the appropriate column if the classification is decreased.

Transactions:

1. Received cash from owner as an investment

2. Bought supplies on account

3. Paid cash for supplies

4. Paid cash for insurance

5. Paid cash on account

Trans. No.

Assets =

Liabilities +

Owner’s Equity

1.

2.

3.

4.

5.


Pg. 19 in Text book, complete in your Working Papers

1-3 REVENUE TRANSACTIONS Revenue – An increase in owner’s equity resulting from the operation of a business Transaction #6 – August 12. Received cash from sales, $295.00

Sale on Account – A sale for which cash will be received at a later date Transaction #7 – August 12. Sold services on account to Oakdale school, $350.00


Cash + Accts. Rec. + Oakdale School

Supplies + Prepaid = Insurance

Accts. Pay. +Supply Depot

Kim Park, Capital

$3,525+295

$0 $775 $1,200 $200 $5,000+295 (revenue)

$3,520 $0+350

$775 $1,220 $200 $5,295+350 (revenue)

$3,520 $350 $775 $1,200 $200 $5,645Total of Left Side: $3520 + $350 +$775 + $1200 = $5,845

Total of Right Side: $200 + $5645 = $5,845

EXPENSE TRANSACTIONS Expense – A decrease in owner’s equity resulting from the operation of a business Transaction #8 – August 12. Paid cash for rent, $300.00 Transaction #9 – August 12. Paid cash for telephone bill, $40.00





Kim Park, Capital

$3,520-300

$350 $775 $1,200 $200 $5,645-300 (expense)

$3,220-40

$350 $775 $1,220 $200 $5,345-40 (expense)

$3,180 $350 $775 $1,200 $200 $5,305

Total of Left Side: $3180 + $350 + $775 + $1200 = $5,505


OTHER CASH TRANSACTIONS Received Cash on Account Transaction #10 – August 18. Received cash on account from Oakdale School, $200.00

Withdrawal – Assets taken out of a business for the owner’s personal use Transaction #11 – August 18. Paid cash to owner for personal use, $125.00Assets = Liabilities + Owner’s

Equity




Kim Park, Capital

$3,180+200

$350-200

$775 $1,200 $200 $5,305

$3380-125

$150 $775 $1,220 $200 $5305-125 (withdrawal)

$3255 $150 $775 $1,200 $200 $5180Total of Left Side: $3255 + $150 + $775 + $1200 = $5,380


WORK TOGETHER 1-3 Write the answers to the following problem in the Working Papers. We will go through this first example together.

Place a plus (+) in the appropriate column if the account is increased. Place a minus (-) in the appropriate column if the account is decreased.

Transactions:

1. Received cash from sales

2. Sold services on account to Bowman Company

3. Paid cash for telephone bill

4. Received cash on account from Bowman Company.

5. Paid cash to owner for personal use.

Trans. No.

Assets

= Liabilities +

Owner’s Equity

Cash + Accts. Rec + Bowman Co.

Supplies +

Prepaid = Insurance

Accts. Pay – Maxwell Co.

Susan Sanders, Capital

1.

2.

3.

4.

5.

ON YOUR OWN1-3 Write the answers to the following problem in the Working Papers. We will go through this first example together.

Place a plus (+) in the appropriate column if the account is increased. Place a minus (-) in the appropriate column if the account is decreased.

Transactions:

1. Sold services on account to Navarro Company.

2. Received cash from sales

3. Received cash on account from Navarro Company.

4. Paid cash to owner for personal use.

5. Paid cash for rent.

Trans. No.

Assets

= Liabilities +

Owner’s Equity

Cash + Accts. Rec + Navarro Co.

Supplies +

Prepaid = Insurance

Accts. Pay – Barrett Co.

Vincent Orr, Capital

1.

2.

3.

4.

5.


Pg. 20 in text book. Complete in your Working Papers

Finished? Work on the 1-4 Mastery Problem and complete the Study Guide at the beginning of the chapter in the workbook.

Documents

ACCOUNTING I Chapter 1. WHAT IS ACCOUNTING? Accounting – planning, recording, analyzing, and interpreting financial information Accounting System – A