CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 1-2LESSON 1-2

How Business Activities Change the Accounting Equation

Classifying accounts.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Competency: Understanding the Competency: Understanding the Accounting Cycle for a Service BusinessAccounting Cycle for a Service Business

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LESSON 1-2

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

Chapter 1 ObjectivesChapter 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.

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LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Transaction – a business activity that changes assets, liabilities, or owner’s equity.

Account – a record summarizing all the information pertaining to a single item in the accounting equation.

Account title – The name given to an account. Capital – The account used to summarize the

owner’s equity in a business.

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LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Types of TransactionsTypes of Transactions

Received Cash Investment from Owner Owner investing $ in his/her own business.

Paid Cash for Supplies Business pays now (cash, check, debit/credit card) for

supplies.

Paid Cash for Insurance Business pays now (cash, check, debit/credit card) for

Insurance.

Bought Supplies on Account Purchasing supplies with the promise to pay later.

Paid Cash on Account Paying today for a previously purchased item.

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LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

RECEIVING CASHRECEIVING CASH

Transaction 1 August 1. Received cash from owner as an investment, $5,000.00.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

PAYING CASHPAYING CASH

Transaction 2 August 3. Paid cash for supplies, $275.00.

Transaction 3 August 4. Paid cash for insurance, $1,200.00.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

TRANSACTIONS ON ACCOUNTTRANSACTIONS ON ACCOUNT

Transaction 4 August 7. Bought supplies on account from Supply Depot, $500.00.

Transaction 5 August 11. Paid cash on account to Supply Depot, $300.00.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 1-2

DEFINE TERMS REVIEWDEFINE TERMS REVIEW

transaction account account title account balance capital

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In your Chapter 1Terms Word Document and resave!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Exit Ticket for Chapter 1-2Exit Ticket for Chapter 1-2

1. What must be done if a transaction increases the left side of the accounting equation?

2. How can a transaction affect only one side of the accounting equation?

3. To what does the phrase on account refer?

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LESSON 1-2

In a Word Document, SaveAS: Chapter1-2AYUYourNameDrop a copy in my InBox today before you leave!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Chapter 1-2 Assignments Chapter 1-2 Assignments Complete on ApliaComplete on Aplia

Work Together 1-2 On Your Own 1-2 Application Problem 1-2

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LESSON 1-2