Chapter 1
Starting a Proprietorship:
Changes That Affect the
Accounting Equation
Identify service businesses.
Analyze sole proprietorship with the advantages
and disadvantages.
State the Accounting Equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
2
Competency: Understanding the
Accounting Cycle for a Service Business
Objectives:
34 Describe the purpose of accounting
and the role it plays in the global
economy.
35 Demonstrate the effects of
transactions on the accounting
equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
3
Chapter 1 Objectives
 Define accounting terms related to starting a service
business organized as a proprietorship and to changes
that affect the accounting equation.
 Identify accounting concepts and practices related to
starting a service business organized as a proprietorship
and to changes that affect the accounting equation.
 Classify accounts as assets, liabilities, or owner’s equity
and demonstrate their relationships in the accounting
equation.
 Analyze how transactions affect accounts in an accounting
equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
4
What is Accounting?
 Accounting – planning, recording, analyzing, and
interpreting financial information.
 Accounting system – a planned process for providing
financial information that will be useful to
management.
 Accounting records – organized summaries of a
business’s financial activities.
 Financial statements – financial reports that
summarize the financial condition and operations of a
business.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
5
 Service business – a business that performs an
activity for a fee.
 Proprietorship/Sole Proprietorship – a business
owned by one person.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
6
BUSINESS STRUCTURES
Forming and Dissolving a Proprietorship
Advantages
 Ease of formation.
 Total control by the
owner.
 Profits that are not
shared.
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Disadvantages
Limited resources.
Unlimited liability.
Limited expertise.
Limited life.
Obligation to follow the
laws of both the federal
government and the state
and city in which the
business is formed.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
7
 Asset – anything of value that is owned.
 Equities – Financial rights to the assets of a
business.
 Liability – an amount owed by a business.
 Owner’s Equity/Capital – the amount remaining after the
value of all liabilities is subtracted from the value of all
assets.
 Accounting Equation – shows the relationship among
assets, liabilities, and owner’s equity.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
8
THE ACCOUNTING EQUATION
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
page 8
LESSON 1-1
9
DEFINE TERMS REVIEW
page 9
In a Word Document. SaveAS: Chapter1TermsYourName
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accounting
accounting system
accounting records
financial statements
service business
proprietorship
asset
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equities
liability
owner’s equity
accounting equation
ethics
business ethics
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
10
Exit Ticket for Chapter 1-1
In a Word Document, SaveAS: Chapter1-1AYUYourName
Drop a copy in my InBox today before you leave!
1. What is accounting?
2. Give two examples of service businesses.
3. What is a proprietorship and explain advantages and
disadvantages?
4. State the accounting equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1
11
Chapter 1-1 Assignments
Complete on Aplia
 Work Together 1-1
 On Your Own 1-1
 Application Problem 1-1
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-1