starting a proprietorship chapter 1. what is accounting? accounting-planning, recording, analyzing,...
TRANSCRIPT
Starting a Proprietorship
Chapter 1
What is Accounting?
Accounting-planning, recording, analyzing, and interpreting financial information.◦Public◦Private
$62,000-$109,000◦Accounting Clerk◦Payroll Clerk
What is Accounting?
Accounting system-a planned process for providing financial information that will be useful by management
Accounting records-organized summaries of a business’s financial activities
What is Accounting?
“Accounting is the language of business”
Many companies have failed due to inaccurate accounting records
Understanding accounting helps managers and owners make better business decisions.
Business Ethics
The principles of right and wrong that guide an individual in making decisions
◦This the action legal?◦Does the action violate company or
professional standards?◦Who is affected and how by the action?
Business Ethics
GAAP-Generally accepted accounting principles
◦Refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements.
The Accounting Equation
Service Business- a business that performs an activity for a fee
Proprietorship- a business owned by one person◦Also referred to a sole proprietorship
◦Name some proprietorship's in and around the Mapleton area
The Accounting Equation
Assets- anything of value owned by the company◦Cash◦Supplies◦Prepaid Insurance
**Make sure to keep personal assets separate.
The Accounting Equation
Equities- financial rights to the assets of a business◦Two different types
◦1. Equity of those to whom the money is owed An amount of money owed by a business is called
a liability
◦2.Equity of the Owner
The Accounting Equation
Equities- financial rights to the assets of a business◦Two different types
◦2. Equity of the owner The amount remaining after the value of all
assets.
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The Accounting Equation
Assets = Liabilities and Owner’s Equity
Left Side
Right Side
The accounting equation MUST be in balance to be correct
How Business Activities Change the Accounting Equation
Transaction- A business activity that changes assets, liabilities and O.E◦Example: a business that pays cash for
supplies.
**AFTER EACH TRANSACTION THE ACCOUNTING EQUATION MUST REMAIN IN BALANCE**
How Business Activities Change the Accounting Equation
Account- is the single item in the accounting equation
Account title- the name given to the account◦Example- Cash, Supplies, Prepaid Insurance
Account Balance- The amount of money in the account
Capital- the account being used to summarize the owner’s equity account
How Business Activities Change the Accounting Equation
Transactions◦Aug. 1 Received cash from owner as
investment, $10,000◦Aug. 2 Paid cash for supplies, $1,577◦Aug. 3 Paid cash for insurance, $1,200◦Aug. 7 Bought supplies on account from Living
Music Supplies $2,720◦Aug. 9 Paid cash to Living Music Supplies, $900
Preparing a Balance Sheet
Top 3 lines◦Name of the business◦The name of the report (Balance Sheet)◦The date September 10, 2013
Left hand column◦“Assets” centered on the top line◦Under the “Assets” heading write each asset
account and the amount in the second column
Preparing a Balance Sheet
Left hand column◦“Assets” centered on the top line◦Under the “Assets” heading write each asset
account and the amount in the second column
Preparing a Balance Sheet
Right hand column◦“Liabilities” centered on the top line◦Under the “Liabilities” heading write each
liability account and the amount in the second column
◦** Skip one line**
Preparing a Balance Sheet
Right hand column◦Write “Owner’s Equity” centered one line down
from the liabilities account.◦Under the “Owner’s Equity” heading write the
owner’s equity account and the amount in the second column
Preparing a Balance Sheet
Under the list of assets, write “Total Assets”◦Add up all the asset amounts and write the
total next to the “Total Assets” line
Under the list of liabilities and OE, write “Total Liabilities’ and Owner’s Equity”◦Add up all the liabilities' amounts and OE
amounts and write the total next to the “Total Liabilities’ amounts and OE”
Preparing a Balance Sheet
Ask yourself, Do they match?◦If yes, double underline the totals◦If no, re-check your work to find the error.
◦You have successfully made a Balance Sheet!!