Chapter 1

Balance Sheet Accounts

Big Ideas

• Define accounting terms related to starting a service business organized as a proprietorship

• Identify accounting concepts and practices related to starting a service business organized as a proprietorship

• Classify accounts as assets, liabilities, or owner’s Equity and demonstrate their relationships in the accounting equation

Big Ideas cont’d

• Analyze how transactions related to starting a service business organized as a proprietorship affect accounts in an accounting equation

• Prepare a balance sheet for a service business organized as a proprietorship from information in an accounting equation

What is Accounting?

• Planning recording analyzing, and interpreting financial information

• Who uses accounting? – Owners

– Managers

– Accounting personnel

• Why– To understand the information in accounting reports in

order to help themselves make better business decisions

The Business Entity

• A service business is a business that performs an activity for a fee

• A Proprietorship is a business owned by one person

Review 1

• What is accounting?• Planning recording analyzing, and

interpreting financial information • What is a service business?• A business that performs an activity for a

fee • What is a proprietorship?• A business owned by one person

THE ACCOUNTING EQUATION

Lesson 1-1, page 7Lesson 1-1, page 7

The Accounting Equation

• Assets = Liabilities + Owner’s Equity

• Assets are anything that a business owns

• Liabilities are what a business owes

• Owner’s Equity is nothing more that the difference between what is owned and what is owed by a business

Review 2

• What are Assets?• Anything that a business owns • What are Liabilities?• What a business owes • What is Owner’s Equity?• The difference between what is owned and what is

owed by a business • What is the Accounting Equation?• Assets= Liabilities + Owner’s Equity

Receiving Cash

• A transaction is defined as a business activity that changes assets, liabilities, or owner’s equity

• Accounts are defined as records that summarize all of the information pertaining to a single item in the accounting equation

• An account title is the name given to an account

RECEIVING CASH

Lesson 1-2, page 9Lesson 1-2, page 9

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

PAYING CASH

Lesson 1-2, page 10Lesson 1-2, page 10

Transaction 2 August 3. Paid cash for supplies, $1,577.00.

Transaction 3 August 4. Paid cash for insurance, $1,200.00.

TRANSACTIONS ON ACCOUNT

Lesson 1-2, page 11Lesson 1-2, page 11

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.

Review 3

• What is a transaction?

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

• What is an account?

• Records that summarize all of the information pertaining to a single item in the accounting equation

Review 4

• What is an account title?

• The name given to an account

• What is an account balance?

• The amount in an account

• What is capital?

• The account used to summarize the owner’s equity in a business

Reporting Financial Information

• A balance sheet is a financial statement that reports assets, liabilities, and owner’s equity

5. Add amounts and

compare the totals.

PREPARING A BALANCE SHEET

Lesson 1-3, page 14Lesson 1-3, page 14

5

1

3

4

2

76

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

Review 5

• What is a Balance Sheet?

• A way of showing a company’s financial health at a period in time

• List the three sections of a Balance Sheet

• Assets

• Liabilities

• Owner’s Equity

Review 6

• What kinds of accounts are on the left side of a balance sheet?

• Assets • What kinds of accounts are on the right side of a

balance sheet?• Liabilities• Owner’s Equity • What should be done if a balance sheet is not in

balance?

• Find the errors before completing any more work