Accounting equations

© 2000 South-Western© 2000 South-Western
Educational PublishingEducational Publishing
Chapter 1 – Starting A ProprietorshipChapter 1 – Starting A Proprietorship
What is Accounting? (see page 4)
Do you know someone who works in accounting?
Do you have a job that provides a paycheck? Your
company uses accounting to keep accurate
records for each employee

Chapter 1 – Starting A ProprietorshipChapter 1 – Starting A Proprietorship
First nine chapters will take you through the entire
accounting cycle for a Service business organized
as a proprietorship
Chapter 1 describes:
– How proprietorship is started
– The transactions that occur when the business is
organized
– How the accounting equation is used to analyze
these transactions
– How to create a balance sheet and the relationship
of the balance sheet to the accounting equation

Encore Music – Business that is used for chapters 1-9Encore Music – Business that is used for chapters 1-9
Chart of Accounts – found on page 3 – will be
used for the first 9 chapters.
Chart of accounts is used for determining the
classification of accounts and to identify which
accounts are temporary and which are permanent
Chart of accounts is extremely important to
companies because they drive the accounting
system. This is how businesses track various
sources of income and expenses.
Why would a business organize as a
proprietorship?
What are characteristics of a proprietorship?
Can you name some service businesses in
Middleville?

Lesson 1-1: THE ACCOUNTING EQUATIONLesson 1-1: THE ACCOUNTING EQUATION
Lesson 1-1, page 7Lesson 1-1, page 7

TTERMS REVIEWERMS REVIEW
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
Service Business – Business that performs
an activity for a fee
Proprietorship – Business owned by one
person

TTERMS REVIEW – cont’dERMS REVIEW – cont’d
Asset – Anything of value that is owned
Equities – Financial rights to the assets of a
business
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:
Assets = Liabilities + Owner’s Equity
Business Entity Concept – A business’s financial
information is recorded and reported separately
from the owner’s personal financial information

Follow-up:Follow-up:
Can you list assets you or your parents own?
Can you identify possible liabilities you or your
parents have?
Can you identify assets owned by the school?

TTERMS REVIEW Lesson 1-2ERMS REVIEW Lesson 1-2
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 – Account used to summarize the
owner’s equity in a business
Unit of Measurement Concept – Stating numbers
that have common units of measurement; i.e.
U.S. dollars. (see page 9)

Lesson 1-2: How Business Activities Change theLesson 1-2: How Business Activities Change the
Accounting Equation – General InfoAccounting Equation – General Info
Assets = Liabilities + Owner’s Equity
Equation must always remain equal
When reading transactions, Received Cash always
means cash increases; Paid Cash always means
cash decreases
Transactions don’t always affect both sides of the
equation
When analyzing transactions, always
– Read the transaction
– Identify the accounts
– Classify the accounts (Asset, Liability or Owner’s
Equity

RECEIVING CASHRECEIVING CASH
Transaction 1 August 1. Received cash from
owner as an investment, $10,000.00.

PAYING CASHPAYING CASH
Transaction 2 August 3. Paid cash for supplies, $1,577.00.
Transaction 3 August 4. Paid cash for insurance,
$1,200.00.
These two transactions only affected the asset side of
the equation – demonstrating that you won’t always
have entries on each side of the equation

TRANSACTIONS ON ACCOUNTTRANSACTIONS ON ACCOUNT
Transaction 4 August 7. Bought supplies on account
from Ling Music Supplies, $2,720.00.
Transaction 5 August 11. Paid cash on account
to Ling Music Supplies, $1,360.00.

TTERMS REVIEWERMS REVIEW
Balance sheet – Common financial statement
that reports assets, liabilities and owner’s
equity on a specific date
Going Concern concept – This is applied when
financial statements are prepared with the
expectation that a business will remain in
operation indefinitely. (see page 13)

5. Add amounts and compare the totals.
Lesson 1-3: PREPARING A BALANCE SHEETLesson 1-3: PREPARING A BALANCE SHEET
5
1
3
4
2
7
6
1. Write the heading.
2. Prepare the assets
section.
3. Prepare the
liabilities section.
4. Prepare the
owner’s equity
section.
6. Rule single lines.
7. Write the totals.
8. Rule double lines.
8

More on Balance SheetsMore on Balance Sheets
Financial statements usually have a three-line
heading which answers the questions: who, what
and when.
Write account titles in full – abbreviations should
be avoided whenever possible to prevent
misunderstanding.

Accounting equations

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (8)

Similar to Accounting equations

Similar to Accounting equations (20)

More from Kautilya Tiwari

More from Kautilya Tiwari (13)

Recently uploaded

Recently uploaded (20)

Accounting equations