Accounting I Lesson Plan

Transcription

1 Accounting I Lesson Plan Name: Terry Wilhelmi Day/Date: Topic: Starting a Proprietorship: Changes That Affect Unit: Chapter 3 Owner s Equity I. Objective(s): By the end of this lesson, the student will be able to: define accounting terms related to changes that affect owner s equity for a service business organized as a proprietorship. identify accounting practices related to changes that affect owner s equity for a service business organized as a proprietorship. analyze changes that affect owner s equity for a service business organized as a proprietorship in an accounting equation. prepare a balance sheet for a service business organized as a proprietorship from information in an accounting equation. II. Materials: Textbook Workbook Transparencies III. Anticipatory Set: In chapter 2 we dealt with five transactions involved in starting Rugcare, a proprietorship. Rugcare is now ready to open for business. We will be learning the transactions that commonly occur during the daily operations of a business that changes Ben Furman s equity in Rugcare. IV. Learning Activities: Transaction - a business activity that changes assets, liabilities, or owner s equity.

2 2 HOW TRANSACTIONS CHANGE OWNER S EQUITY IN AN ACCOUNTING EQUATION Many transactions involved in the daily operations of a business increase or decrease owner s equity. Details about these changes are needed by owners and managers to make sound business decisions. Illustration 3-1, pg accounting equation after transactions for starting a proprietorship. Received from Sales When cash is received from a sale, the total amount of assets and owner s equity is increased. Revenue - an increase in owner s equity resulting from the operation of a business. (pg. 37 & Illustration 3-2, pg. 38) $ (revenue) * both sides of the equation are changed by the same amount and, therefore, balances. Paid for Expenses A transaction to pay for goods or services needed to operate a business results in a decrease in owner s equity. (Illustration 3-3, pg. 39) Expense - a decrease in owner s equity resulting from the operation of a business. Paid for Rent $250 (pg. 38) (expense) * paying cash for an expense decreases assets and owner s equity. * both sides of the equation are changed by the same amount and, therefore, balances.

3 3 Paid for Telephone Bill (utility) $45 (Illustration 3-4, pg. 39) (expense) * other utilities are electricity, gas, water, and sanitation. Other expense transactions might be for advertising, equipment rental or repairs, charitable contributions, and other miscellaneous items. Have students list their personal expenses and explain how expenses decrease their equity. (Financial rights to assets) Paid to Owner for Personal Use Withdrawal - assets taken out of a business for the owner s personal use. A withdrawal decreases owner s equity. Although an owner may withdraw any kind of asset, usually an owner withdraws cash. $100 (pg. 40 & Illustration 3-5, pg. 41) (withdrawal) * a decrease in owner s equity because of a withdrawal is not a result of the normal operations of a business, therefore, a withdrawal is not an expense. * paying cash to owner for personal use decreases assets and owner s equity. * both sides of the equation are changed by the same amount and, therefore, balances.

4 4 Summary of Changes in Owner s Equity Kind of Transaction Change in Owner s Equity Investment +$10,000 Revenue Expense (rent) Expense (utility) - 45 Withdrawal A revenue transaction increases owner s equity. Expense and withdrawal transactions decreases owner s equity. For a business to succeed, revenues must be greater than expenses during most periods of time. An established business should rarely experience a decrease in its owner s equity. Professional Business Ethics, pg. 40 REPORTING A CHANGED ACCOUNTING EQUATION ON A BALANCE SHEET A balance sheet may be prepared on any date to report information about the assets, liabilities, and owner s equity of a business. The accounts on the left side of the accounting equation are reported on the left side of the balance sheet. The accounts on the right side of the accounting equation are reported on the right side of the balance sheet. The balance sheet is in balance when the total of the left side of the balance sheet is equal to the total of the right side of the balance sheet. Illustration 3-6, pg Balance Sheet

5 5 Monthly balance sheet provide business owners and managers with frequent and regular information for making business decisions. Summary Illustration of transactions affecting the accounting equation (pg. 44). FYI, pg. 39 FYI, pg. 42 Assignment: Be sure you know and understand: do Drill 3-D2, pg. 46 in class. do Problem 3-1 in class, pg. 47 record answers in workbooks. Case 2 in class, pg. 45 accounting terms 1-3, pg. 45. the answers to questions 1, 3, 5-7, 9-12, pg. 45. Problem 3-M, pg. 49 V. Closure: To review for test do Study Guide 3 and Problem 3-M. VI. Evaluation of Student Learning: Students will be evaluated using Problem 3-M, and Chapter 3 test.

6 6 Reference List Ross, K.E., Hanson, R.D., Gilbertson, C.B., Lehman, M.W., & Swanson, R.M., (1995). Century 21 Accounting: First-Year Course (6th ed.). Cincinnati: South-Western Publishing Co. Working Papers and Study Guides - Century 21 Accounting (6th ed.). Cincinnati: South-Western Publishing Co. Viking Marine Business Simulation. Cincinnati: South-Western Publishing Co.