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Chapter 1
Starting a Proprietorship
Terms that you need to knowAccounting
Planning recording analyzing and interpreting financial information
Accounting System A process for providing financial
information that will be useful to management
Accounting Records Organized summaries of a business’s financial activities
Assets Anything of value that is owned
Cash Insurance Supplies
Equities Financial rights to the assets of a business
Liabilities An amount owed by a business
Any business that we buy something from
Owner’s Equity The amount remaining after the value of all liabilities
subtracted from the value of all assets (Owner’s Name), Capital Account
Example
• You go to the car dealer to buy a new truck.
• You only have $8000
• The truck cost $15,000
• Property = Credit + Equity
$15,000
$8000
$7000
The accounting equationProperty = Credit + EquityAssets = Liability + Owner’s
Equity
$15,000
$8000
$7000
How the accounting equation changes
Assets = Liability + Owner’s Equity
More termsTransaction
A business activity that changes asset’s, liabilities , or owner’s equity
Account Each transaction effects at least 2
accountsAccount Title
Each account has its own title
Each account has a ACCOUNT BALANCE Each balance should be a positive number
Capital Account The account that summarizes the owner’s
equity
Work together page 8Assets = Liability + Owners Equity
? 3000 800010000 ? 600063000 35000 ?
Now you do On your own………….
Section 2How business activities change the
accounting equation
Remember the accountsASSETS = Liabilities + Owners Equity
CashSuppliesPrepaid Insurance
Accts Pay –Name of Company
Name of Owner, Capital
Transaction #1August 1. Received cash from owner as an investment, $10,000.
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Do Assets = Liabilities + Owner’s Equity?
Transaction #2August 3. Paid cash for Supplies $1577.
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Supplies
$1577 $1577
Do Assets = Liabilities + Owner’s Equity?
Transaction #3August 4 Paid cash for insurance $1,200
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Supplies
$1577 $1577
Prepaid Ins
$1200 $1200
$7223 1577 1200 10,000
Do Assets = Liabilities + Owner’s Equity?
Transaction #4August 7 Bought supplies on account from Ling Music Supplies $2,720
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Supplies
$1577 $1577
Prepaid Ins
$1200 $1200
$2720 $2720
Acct PayLing MusicSupplies
Do Assets = Liabilities + Owner’s Equity?
Transaction #5August 11. Paid cash on account to Ling Music Supplies $1360
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Supplies
$1577 $1577
Prepaid Ins
$1200 $1200
$2720 $2720
Acct PayLing MusicSupplies
Do Assets = Liabilities + Owner’s Equity?
$1360 $1360
Work Together Page 12
Trans No Assets = Liabilities + Owners Equity
Now work on your own on page 12Please check the answers with me or
the key in the back of the room.
Chapter 1 Section 3
Preparing a Balance Sheet
Transaction #5August 11. Paid cash on account to Ling Music Supplies $1360
Assets = Liability + Owner’s EquityCash Barbara Trevino, Cap
$10,000 $10,000
Supplies
$1577 $1577
Prepaid Ins
$1200 $1200
$2720 $2720
Acct PayLing MusicSupplies
Do Assets = Liabilities + Owner’s Equity?
$1360 $1360
$5863 $4297 $1200 $1360 $10000
We need to create a sheet that totals all of these accounts so that we can have it on one sheet of paper.
We create a sheet called a balance sheet Balance sheets contain
Assets Liabilities Owner’s Equity
$5863 $4297 $1200 $1360 $10000
Assets = Liability + Owner’s Equity
To Create a balance sheetTitle the sheet (all information is
centered) Name of the company Name of the sheet Date sheet was created
$5863 $4297 $1200 $1360 $10000
Assets = Liability + Owner’s Equity
August 11, 200X
Encore MusicBalance Sheet
To Create a balance sheetTitle the sheet (all information is
centered) Name of the company Name of the sheet Date sheet was created
Step two Label the Assets section and place all of
the assets in with totals
$5863 $4297 $1200 $1360 $10000
Assets = Liability + Owner’s Equity
AssetsCash 5863Supplies 4297Prepaid Ins 1200Total 11360
August 11, 200X
Encore MusicBalance Sheet
To Create a balance sheet Title the sheet (all information is centered)
Name of the company Name of the sheet Date sheet was created
Step two Label the Assets section and place all of the
assets in with totals
Step Three Label Liabilities and owners equity and total
$5863 $4297 $1200 $1360 $10000
Assets = Liability + Owner’s Equity
Assets LiabilitesCash 5863 A/P - Ling Music 1360Supplies 4297 Owner's EquityPrepaid Ins 1200 Barbara Trevino, Cap 10000Total 11360 Total Liab and O.E. 11360
August 11, 200X
Encore MusicBalance Sheet
To Create a balance sheet Title the sheet (all information is centered)
Name of the company Name of the sheet Date sheet was created
Step two Label the Assets section and place all of the assets in with
totals Step Three
Label Liabilities and owners equity and total Step four
Double underline both sides indicates we are done with the sheet.
Working together page 15
Problem 1-1,2,3,4,5,6
Assets = Liabilities + Owners Equity
90,000 49,000
68,000 30,000
3,000 2,000
108,000 60,000
19,000 11,000
4,000 12,000
25,000 13,000
113,000 49,000
4,000 2,000
86,000 48,000
12,000 7,000
5,000 14,000
Review of Chapter 1 Definition of Accounting Defined important vocab terms
Asset Liability Owners Equity
Discussed the Accounting Equation Saw the relationship between the Accounting
Equation and Transactions Learned how to create a balance sheet
Can you do this transactionReceived Cash from owner, Mr. Parks
as investment $10,000 Bought supplies with Cash $2000Bought supplies on Account – Mr.
Prosser Supplies $1000Paid cash on Account – Mr. Prosser
$500
Assets = Liabilities + Owners Eq
CASH Mr. Parks, Capital
$10,000 $10,000Supplies
$2000 $2000
$8000 $2000 $10,000
$1000
Accts Pay- Mr. Parks
$1000
$8000 $3000 $1000 $10,000
$500 $500
$7500 $3000 $500 $10,000
