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CHAPTER ONE

CHAPTER ONE. Principles of Accounting. PRINCIPLES OF ACCOUNTING. Objectives:. 1. Describe the functions of accounting. 2. Complete an accounting equation . 3. Prepare a balance sheet . 4. Demonstrate the process of recording business transactions in equation form.

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CHAPTER ONE

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  1. CHAPTER ONE Principles of Accounting

  2. PRINCIPLES OF ACCOUNTING Objectives: 1. Describe the functions ofaccounting. 2. Complete anaccounting equation. 3. Prepare abalance sheet. 4. Demonstrate the process of recording business transactions in equation form.

  3. Beginning an Accounting System • The proprietor should make a list of the money and other property that is being used to begin the business. • All property the business owns are its assets.

  4. Beginning an Accounting System (continued) • Debts owed by a business are liabilities. • Owner’s equity is an accounting term that indicates the financial interest of the owner in a business.

  5. The Accounting Equation Assets = Liabilities + Owner’s Equity

  6. The Balance Sheet • The balance sheet is an itemized list of the assets, liabilities, and owner’s equity of a business on one particular date.

  7. The Effect of Business Activities on the Balance Sheet • Business activities such as buying, selling, receiving money, and paying bills cause continual changes in the amounts of the assets, liabilities, and owner’s equity.

  8. The Effect of Business Activities on the Balance Sheet (continued) • These business activities are called transactions and need to be recorded as part of the business’ operations.

  9. Accounting Terminology • Account • Accounting • Accounting Equation • Accounts Payable • Assets • Balance Sheet • Business Transactions • Creditors • Invest • Investment • Liabilities • Owner’s Equity • Proprietor

  10. Chapter Summary • Assetsare the property owned by a business. • Liabilitiesare debts owed by a business. • Owner’s equityis the difference between the assets and the liabilities and represents the financial interest of the owner in a business.

  11. Chapter Summary(continued) • Liabilitiesrepresent the claims of creditors to the assets of a business, andowner’s equityis the claim of the owner to the assets. • The fundamental accounting equation is:Assets=Liabilities + Owner’s Equity.

  12. Chapter Summary(continued) • Thebalance sheetis a statement ofassets, liabilities, andowner’s equity.It shows the financial position of a business on one particular date. • Every business transactionaffects at least two items.

  13. Topic Quiz Answer the following true/false questions: 1. All the properties a business owns are called assets. TRUE 2. Debts owed by a business are called liabilities. TRUE 3. Owner’s equity is the financial interest of creditors in a business. FALSE

  14. Investigating on the Internet Sources of information about balance sheets can be accessed at the websites of most major businesses. As a research assignment, access two or three business’ websites. Compare and contrast their use of balance sheets and how they are used to show the state of the business.

  15. Topic Quiz (continued) 3. Owner’s equity is the financial interest of creditors in a business. FALSE It is the financial interest of the owner in a business. (Return to Topic Quiz)

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