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ACCOUNTING & ACCOUNTING SYSTEMS

P R A I– Planning– Recording– Analyzing– Interpreting financial information

Accounting System– A planned process for providing financial

information that will be useful to management

© 2000 South-WesternEducational Publishing

ACCOUNTING RECORDS & SERVICE BUSINESS

Accounting Records– Organized summaries of a business’s financial

activities.

Service Business– A business that performs an activity for a fee

• EXAMPLES: Laundry service, house cleaning, landscaping, etc.

© 2000 South-WesternEducational Publishing

PROPRIETORSHIP

A business owned and operated by one person– ENCORE MUSIC

© 2000 South-WesternEducational Publishing

ASSETS & LIABILITIES

ASSETS– Anything of value that is owned

• Example: – Personal assets - Car, house, clothing, etc.– Business assets – Cash, Supplies and Prepaid

Insurance

LIABILITIES– An amount that a business owes

• Example:– Personal liability – Credit cards, mortgage, etc.– Business liability – Buying supplies on account (credit)

© 2000 South-WesternEducational Publishing

EQUITIES & OWNER’S EQUITY

Equities– Financial rights to the assets of a business

• Business has two types of equity– Equity of those to whom money is owed

» Example: Encore Music buys supplies and agrees to pay for them at a later time. (Credit)

– Equity of the owner» Example: Owner of Encore Music invests

personal money to start her business.

Owner’s Equity– The amount remaining after the value of all

liabilities is subtracted from the value of all assets.

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THE ACCOUNTING EQUATION

Lesson 1-1, page 7

© 2000 South-WesternEducational Publishing

TERMS REVIEWaccounting

accounting system

accounting records

service business

proprietorship

Lesson 1-1, page 8

asset

equities

liability

owner’s equity

accounting equation