Accounting Chapter 1

Accounting Chapter 1

by Jacqueline Robinson

​What Is Accounting?

​Accounting is the process of planning , recording, analyzing and interpreting financial information. The Accounting process includes recording financial activities, but accounting is not the same as bookkeeping or recordkeeping. Accounting goes much further than keeping records. Accounting involves, analyzing and interpreting a business operations to determine its financial well-being and plan its future success.

​Describe The Different Users of Accounting Information

​Anyone who needs it to make good business decisions; banks, investors, business owners or any individual.

​Accounting Equation

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​Assets = Liabilities + Owner's Equity

​What is an Asset?

​Anything of monetary value that a person owned.

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​Examples:

​​House

​Car

​Jewelry

​Cash

​Land

​What is Liabilities

​Anything that is owed to someone else.

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​Examples:

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​Car Note

​Student Loan

​Purchases made on account (Accounts Payable)

​Property Tax

What is ​Owner's Equity?

​The difference between total assets and total liabilities.

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​Example:

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​If a person total asset is $20,000 and total liabilities is $14,000, then owner's Equity would be $6,000.

​Another name for Owner's Equity is Net Worth

​How to create a personal Net Worth Statement using the below information:

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​Cash $15,000

​Owe Scap College $8,000

​Owe Wells Fargo (car note) $2,000

Jewelry $2,500

​Net Worth Statement

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Assets

Cash $15,000

​Jewelry $2,500

​Total Assets $17, 500

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​Liabilities

​Owe Scap College $8,000

​Owe Wells Fargo (car note) $2,000

​Total Liabilities $10,000

​ Net Worth $7, 500

​How Business Activities change Accounting Equation

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Example​:

Transaction 1. On January 5, we receive $15,000 from owner as investment.

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​ Asset = Liability + Owners Equity

Begining balance 0 = 0 + 0

​Cash invested $15,000 = 0 + $15,000

​How Business Activities change Accounting Equation

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Example​:

Transaction 2. On January 10, we purchase supplies for cash $500 from Office Depot.

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​ Asset = Liability + Owner's Equity

Cash $15,000

​less $500

​Total cash = $14,500

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​Supplies $500 = 0 + $15,000

******Notice that this transaction only affects asset accounts

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​How Business Activities change Accounting Equation

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Example​:

Transaction 3. On January 11, we purchase supplies on account from Office Depot for $700.

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​ Asset = Liability + Owner's Equity

Cash $14,500

​​​Supplies $500 +700 AP- Office Depot $700 + $15,000

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Total Asset = AP-Office Depot + Owner's Equity

$15, 700 = $700 + $15,000

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