1
OBJECTIVES
 Define Accounting, service business and
proprietorship
 Advantages and disadvantages of accounting
 Understand Assets, liabilities and owner’s equity
 State the accounting equation
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
LESSON 1-1
What is Accounting ?
 Accounting: (Definition) planning, recording,
analyzing, and interpreting financial information
 Language of Business
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LESSON 1-1
Advantages
 Helps managers make better business decisions
 Controls spending
Disadvantages
 Inaccurate accounting records can lead to business
failure and bankruptcy
 Failure to understand accounting can result in poor
business decisions
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Accounting Terms
 accounting: planning, recording, analyzing, and
interpreting financial information
 accounting system: a planned process for
providing financial information that will be useful to
management (for making decisions)
 accounting records: organized summaries of a
business’s financial activities
 financial statements: financial reports that
summarize the financial condition and operations of
a business
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LESSON 1-1
5
Chapters 1 – 8
In Chapter 1 – 8 sample in PowerPoints are:
 Accounting records for a proprietorship
 Accounting records for a service business
 Company Name is: Techknow Consulting
 Service provided: help setup and troubleshoot
computer networks
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
Types of Businesses
 Service business:
 a business that performs an activity for a fee
 installing a network
 not a tangible product - (can’t necessarily
touch or feel it or carry it away)
 example: hair cut
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Business Structures
 What is a proprietorship?
 proprietorship: a business owned by one person
 Note: owner’s must keep personal accounting
records separate from business records
 Illegal not to
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LESSON 1-1
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Business Structures
 What are three advantages?
Ease of formation, total control, non-shared
profits
 What are the disadvantages?
Limited resources
Unlimited liability
Limited expertise
Limited life
Must follow both federal and state laws
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
10
The Accounting Equation
 Two primary components in Accounting:
 Asset: anything of value that is owned
 What are some things a business may own?
 Equities: financial rights to the assets of a
business
 What you owe
 What you have left if you subtract what you owe
from what you own
 What are some types of owner’s equity?
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LESSON 1-1
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The Accounting Equation
• Equities: financial rights to the assets of a business
• Two Types:
 liability: an amount owed by a business
 Those whom money is owed to
 You charged products to pay later, or you buy stocks,
bonds etc, to fund your business
 When you charge something you still have to pay it
 owner’s equity:
 The amount remaining after the you subtract the
value of liabilities from the value of assets
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LESSON 1-1
12
 If you have a computer and an XBOX with a
combined value of $850 and you owe $250 on the
computer, how much is your owner’s equity?
Assets
Equities
Liabilities
Owner’s Equity
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
Accounting Equation
 Accounting Equation: the relationship among
assets, liabilities, and owner’s equity is written as an
equation:
 Written as:
Assets = Liabilities + Owner’s Equity
CENTURY 21 ACCOUNTING © Thomson/South-Western
Accounting Equation
Characteristics of the equation:
 Assets and Equities must be equal
 Can be written in a T-Account form:
 Assets on the left, equities on the right
 Total on the left will always = the total on the right
CENTURY 21 ACCOUNTING © Thomson/South-Western
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THE ACCOUNTING EQUATION
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
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The Accounting Equation
 Assets and Equities must be equal
 Total on the left will always = the total on the right
If Assets are $5000 and liability is $1000, what is Owner’s Equity?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
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Example 1.1
Assets
1.
?
=
Liabilities +
Owner’s Equity
4,000
10,000
2. 10,000
?
8,000
3. 60,000
38,000
?
1. Assets = 14,000
2. Liabilities = 2,000
3. Owner’s Equity = $22,000
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-1
18
Ethical Decision Making
page 9
 ethics: the principles of right and wrong that
guide an individual in making decisions
 business ethics: the use of ethics in making
business decisions
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LESSON 1-1
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TERMS REVIEW
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



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accounting
accounting system
accounting records
financial statements
service business
proprietorship
asset
CENTURY 21 ACCOUNTING © Thomson/South-Western

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



equities
liability
owner’s equity
accounting equation
ethics
business ethics
LESSON 1-1
Notebook Assignment
Lesson 1-1 Assignment 2
 Number 1: What is the accounting equation
 Number 2: Draw a “T Account”: Put accounting
equation elements on the correct side.
 Number 3: What are two examples of a service
business?
 Number 4: What is a proprietorship?
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Assignment:
 Work Together 1-1
 On Your Own 1-1
 Application 1-1
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LESSON 1-1