ACCOUNTING & FINANCE FOUNDATIONS
Chapter 1: Starting a Proprietorship
STUDY GUIDE 1
Part One – Identify Accounting Terms
Directions: Select the one term from the list below that best fits each definition in
Column I. Write the term identifying your choice in the “Answers” column.
account
account
balance
balance sheet
owner’s equity
asset
accounting
equation
capital
proprietorship
account title
accounting
records
equities
service business
Column I
1
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
accounting
accounting
system
liability
transaction
Answers
Planning, recording, analyzing, and interpreting financial
information.
A planned process for providing financial information that will be
useful to management.
______________________
______________________
Organized summaries of a business’s financial activities.
______________________
A business that performs an activity for a fee.
______________________
A business owned by one person.
______________________
Anything of value that is owned.
______________________
Financial rights to the assets of a business.
______________________
An amount owned by a business.
The amount remaining after the value of all liabilities is subtracted
from the value of all assets.
An equation showing the relationship among assets, liabilities,
and owner’s equity.
A business activity that changes assets, liabilities, or owner’s
equity.
A record summarizing all the information pertaining to a single
item in the accounting equation.
______________________
The name given to an account.
______________________
The amount in an account.
______________________
The account used to summarize the owner’s equity in a business.
A financial statement that reports assets, liabilities, and owner’s
equity on a specific date.
______________________
Name___________________________________
______________________
______________________
______________________
______________________
______________________
Date ______________________
ACCOUNTING & FINANCE FOUNDATIONS
Chapter 1: Starting a Proprietorship
Part Two – Identifying Accounting Concepts and Practices
Directions: Place a “T” for True and an “F” for False in the “Answers” column to show
whether each of the following statements is true or false.
Answers
1.
Accounting is the language of business.
__________
Keeping personal and business records separate is an application of the business
2.
entity concept.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Assets such as cash and supplies have value because they can be used to
acquire other assets or be used to operate a business.
The relationship among assets, liabilities, and owner’s equity can be written
as an equation.
The equation is called the accounting equation and does not have to be in
balance to be correct.
The sum of the assets and liabilities of a business always equals the
investment of the business owner.
Recording business costs in terms of hours required to complete projects and
sales in terms of dollars is an application of the unit of measurement
concept.
The capital account is an owner’s equity account.
__________
__________
__________
__________
__________
__________
If two amounts are recorded on the same side of the accounting equation,
the equation will no longer be in balance.
When a company pays insurance premiums in advance in an insurer, it
records he payment as a liability because the insurer owes future coverage.
When items are bought and paid for later this is referred to as buying on
account.
When cash is paid on account, a liability is increased.
__________
__________
__________
__________
The Going Concern accounting concept affects the way financial
statements are prepared.
On a balance sheet, a single line means that amounts are to be added or
subtracted.
Name___________________________________
__________
__________
__________
Date ______________________
ACCOUNTING & FINANCE FOUNDATIONS
Chapter 1: Starting a Proprietorship
Part Three – Analyzing How Transactions Change an Accounting Equation
Directions: For each of the following transactions, select the two accounts in the
accounting equation that are changed. Decide if each account is increased or
decreased. Place a “+” in the column if the account is increased. Place a “-“ in the
column if the account is decreased.
Transactions
1
Received cash from owner as an investment.
2
Paid cash for supplies.
3
Paid cash for insurance.
4
Bought supplies on account from Ling Music Supplies.
5
Paid cash on account to Ling Music Supplies.
Trans.
No.
Assets
Cash
Supplies
Prepaid
Insurance
Liabilities
Owner’s Equity
Accts. Pay. – Ling
Music Supplies
B. Trevino, Capital
1
2
3
4
5
Name___________________________________
Date ______________________
ACCOUNTING & FINANCE FOUNDATIONS
Chapter 1: Starting a Proprietorship
Part Four – Analyzing a Balance Sheet
Directions: The parts of the balance sheet below are identified with capital letters. For
each of the following items, decide which part is being described. Print the letter
identifying your choice in the “Answers” column.
Answers
1. The total amount of equity in the business.
___________
2. The label “Assets.”
___________
3. The total amount owned by the business.
___________
4. The name of the business. (Note: Title of business)
___________
5. The “Liabilities” section.
___________
6. The name and date of the report.
___________
7. The “Assets” section.
___________
8. The amount of the owner’s equity.
___________
9. The label “Owner’s Equity.”
___________
10. The label “Liabilities.”
Name___________________________________
___________
Date ______________________