Important Considerations◦ Assets◦ Liabilities◦ Owner’s equity◦ and the Accounting EquationAccounting Equation.

We’ll discuss more about these over the next few slides.

Decide on a service business ◦ A service business

Sells services, not merchandise Less complex and thus is a preferred scenario when time is limited

For purposes of the provided case, the service business is:◦“LightSpeedLightSpeed Networks: A Gaming Service”

AssetAsset◦ Property or economic resources owned by a business or

individual Examples?

LiabilityLiability◦ Amounts owed to creditors

Examples? Owner’s EquityOwner’s Equity

◦ Owner’s claim to or investment in the assets of a business Examples?

Determine what “things” are needed to start the business◦ i.e., Cash Account, basic equipment, maybe a vehicle,

supplies, etc. These are “things” that a business has possession and

control of; we call these “things” ASSETSASSETS.

Determine what liabilities the business may need to incur.

Plan to purchase at least one item “on-account.”◦ This entails the use of a liability account, representing the

amount owed for a purchase. The amount owed is called a LIABILITYLIABILITY.

The difference between the total ASSETASSET amount and the total LIABILITYLIABILITY amount is defined as NET NET WORTHWORTH.

The business proprietor is the owner◦ The owner’s name should be included in the capital and

drawing accounts Accounts that represent increases/decreases to the Net Worth. Typically investments/withdrawals made by the owner.

AssetsAssets = LiabilitiesLiabilities + Owner’s EquityOwner’s Equity The accounting equation should never be “out of

balance”◦ If it is, then there is an error in the accounting records that

must be located and corrected! The Balance Sheet is the financial statement that

contains the Asset, Liabilities and Owner’s Equity information for a moment in time.