LESSON 1 1 What is Accounting The Accounting

LESSON 1 -1 What is Accounting? The Accounting Equation CENTURY 21 ACCOUNTING © Thomson/South-Western

2 What is Accounting? n Planning, recording, analyzing and interpreting financial information is called accounting. n A planned process for providing financial information that will be useful to management is called an accounting system. n Organized summaries of a business’s financial activities are called accounting records. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

3 What is Accounting n Financial reports that summarize the financial condition and operations of a business are called financial statements n Are used to make financial decisions n Inaccurate accounting records often contribute to business failure and bankruptcy CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

4 Types of Business n Service Business: a business that performs an activity for a fee n Examples n Dentist n Construction Business n Hair Salon n Proprietorship: a business owned by one person n Often referred to as a sole proprietorship CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

5 All About Assets n Anything of value that is owned is an asset n Assets have value because they can be used to acquire other assets or to operate a business n Examples: n Cash n Supplies CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

6 All About Equities and Liabilities n Equities are financial rights to the assets of a business n Two Types n Equity of those to whom money is owed n Buy supplies and agree to pay for at later date n Equity of the owner n Owner has right to make decisions how assets will be used CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

7 All About Equity and Liabilities n An amount owed by a business is called a liability n Owner’s equity: the amount remaining after the value of all liabilities is subtracted from the value of all assets CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

8 A Bit About Ethics n Ethics: The principles of right and wrong that guide an individual in making decisions n The use of ethics in making business decisions is called business ethics CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

9 THE ACCOUNTING EQUATION CENTURY 21 ACCOUNTING © Thomson/South-Western page 8 LESSON 1 -1

10 The Accounting Equation MUST be in balance! The total amount on the left side must always equal the total of the amounts on the right side! CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1

11 TERMS REVIEW n n n n accounting system accounting records financial statements service business proprietorship asset CENTURY 21 ACCOUNTING © Thomson/South-Western page 9 n n n equities liability owner’s equity accounting equation ethics business ethics LESSON 1 -1

12 Review Section 1 -1 n Workbook n Page 5 n Page 6 CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1 -1