Chapter 1 Vocab

Account A record summarizing all the information pertaining to a single item in the accounting equation
Account Balance The amount in an account
Account title The name given to an account
Accounting Planning, recording, analyzing, and interpreting financial information
Accounting Equation An equation showing the relationship among assets, liabilities, and owners equity
Accounting records Organized summaries of a businesss financial activities
Accounting system A planned process for providing financial information that will be useful to management
Asset Anything of value that is owned
Business ethics the use of ethics in making business decisions
Capital - The account used to summarize the owners equity in a business
Equities Financial rights to the assets of a business
Ethics the principles of right and wrong that guide an individual in making decisions.
Expense- A decrease in owners equity resulting from the operation of a business

Financial Statements Financial reports that summarize the financial conditions and operations of a business from t
Liability An amount owed by a business
Owners equity The amount remaining after the value of all liabilities is subtracted
Proprietorship A business owned by one person
Revenue- An increase in owners equity resulting from the operation of a business
Sale on account- A sale for which cash will be received at a later date
Service Business A business that performs an activity for a fee

Transaction A business activity that changes assets, liabilities, or owners equity

Withdrawals- Assets taken out of a business for the owners personal use

accounting equation

and owners equity

be useful to management

perations of a business from the value of all assets

Chapter One Outline Starting a Proprietorship

A. Asset- anything of value that you own
1.) Personal- ex. Cash, House, Car
2.) Business- ex. Supplies, Equipment, Money
B. Two types of equities- financial rights to an asset
1.) Owners- value of business
2.) Liabilities- something that you owe
C. Accounting Equation (a.l.o.e.)
.
1.) Assets = Liabilities + Owners Equity
D. Transactions1.) - if opposite sides of the equation, you must have 2 plusses and 2
minuses.
2.) if its on the same side of the equation you just have one plus
and one minus
E. Buy/Sell on account- buy now , pay later / sell now , receive cash later
F. Balance Sheet1.) Assets, Liabilities, Owners Equity
2.) Prepare
a. heading
b. asset section
c. liability section
d. owners equity section
e. add and compare totals
f. single border
g. record totals on same line
h. double border

G.

Changes in Owners Equity (w.i.r.e.) Capital Account- main account

1. Revenue- + Good
a. Sales
b. Admissions
2. Expense- - Bad

3. Withdrawal- - Bad / Owner can withdraw cash for personal use

a. Personal
4. Investment- + Good / When owner invests in business
H.

Accounts Receivable (Customers)

1. asset
2. replaces receiving cash until a later date
I.

Service Business a business that performs an activity for a fee

J.

Proprietorship business owned by one person

K.

Small Business Administration (SBA)

1.
2.

Government organization designed to help small businesses.

Areas of assistance include: Start up basics, writing a business plan, how to finance the busines

L.

Business Entity Concept applied when a businesss financial information is recorded an

M.

Proprietorship:

1. Advantages: Ease of formation, total control by owner, profits are not shared.
2. Disadvantages: Limited resources, unlimited liability, limited expertise, limited life
N.

Unit of Measurement Concept applied when business transactions are stated in numbe

O.

Realization of Revenue Concept applied when revenue is recorded at the time goods o

P.

GAAP (Generally Accepted Accounting Practices) standards and rules that account

Q.

SEC (Security Exchange Commission) has the authority to establish GAPP.

R.

FASB (Financial Accounting Standards Board) organization that has the authority t

, how to finance the business, how to market the business, employment laws, taxes, legal aspects of owning a busines

l information is recorded and reported separately from the owners personal financial information.

actions are stated in numbers that have common values (ex dollars, percents, etc

ecorded at the time goods or services are sold.

ards and rules that accountants follow while recording and reporting financial activities.

o establish GAPP.

tion that has the authority to set accounting standards.

aspects of owning a business, and special help for specific groups.

Trans No.
Cash
Beg Bal
0
1 +5000
New Bal
5000
2 -700
New Bal
4300
3
New Bal
4300
4 -40
New Bal
4260
5 -600
New Bal
3660
6
New Bal
3660
7
New Bal
3660
8 -200
New Bal
3460
9 -55
New Bal
3405
10 -300
New Bal
3105
11 -300
New Bal
2805
12 +2000
New Bal
4805
Total

AR - Stratham Tire

Assets
Supplies
0

0
+750
750
+40
790

0
0
0
+200
200

=
Pre Ins
0
0
+700
700
700
700

790

700
700

200

790
+900
1690
+200
1890

200

1890

700

200

1890

700

200

1890

700

200

1890

700

200

7595

700
700

Liabilities
Acc Pay - Metro Supplies
0

Acc Pay - Smith Supply

0

0
+750
750

OE
Robert Bechard, Capital
0
+5000
5000
0
5000

5000

750

750

750

0
+900
900

5000
-600
4400
+200
4600

750
750
750
-300
450

4600

900
-55
845

4600

845

4600
-300
4300
+2000
6300

450

845

450

845

Total

7595

4600

Application 1-1

Assets

Liabilities

Owner's Equity

95,000.00

51,000.00

44,000.00

64,000.00

44,000.00

20,000.00

4,000.00

1,500.00

2,500.00

138,000.00

70,000.00

68,000.00

19,000.00

8,000.00

11,000.00

16,000.00

4,000.00

12,000.00

35,000.00

13,000.00

22,000.00

169,000.00

120,000.00

49,000.00

8,000.00

4,800.00

3,200.00

10

86,000.00

48,000.00

38,000.00

11

12,000.00

5,000.00

7,000.00

12

30,000.00

8,000.00

22,000.00

13

47,000.00

24,000.00

23,000.00

14

42,000.00

29,000.00

13,000.00

15

57,000.00

21,000.00

36,000.00

16

125,000.00

69,000.00

56,000.00

17

11,000.00

5,000.00

6,000.00

18

1,300.00

2,000.00

3,300.00

er's Equity

Peters Service Company

Balance Sheet
Sept. 4 2014
Assets
Cash
Lisa Lee
Supplies
Prepaid Ins.

Total Assets

Liabilities
1,790.00 Acc Pay - Kline Co.
100.00
375.00
300.00
Owner's Equity
Peter Smith, Capital
2,565.00 Total Liabilities and OE

200.00

2,365.00
2,565.00