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Establish a Service Business

Establish a Service Business. Important Considerations Assets Liabilities Owner’s equity and the Accounting Equation . We’ll discuss more about these over the next few slides. Case Development-Step 1: Your Own Business. Decide on a service business A service business

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Establish a Service Business

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  1. Establish a Service Business • Important Considerations • Assets • Liabilities • Owner’s equity • and the Accounting Equation. We’ll discuss more about these over the next few slides.

  2. Case Development-Step 1: Your Own Business • 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: • “LightSpeed Networks: A Gaming Service”

  3. Assets, Liabilities, and Owner’s Equity • Asset • Property or economic resources owned by a business or individual • Examples? • Liability • Amounts owed to creditors • Examples? • Owner’s Equity • Owner’s claim to or investment in the assets of a business • Examples?

  4. Case Development-Step 2: Assets • 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” ASSETS.

  5. Case Development-Step 3: Liabilities • 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 fora purchase. The amount owed is called a LIABILITY.

  6. Net Worth • The difference between the total ASSET amount and the total LIABILITY amount is defined as NET WORTH. • 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.

  7. Accounting Equation • Assets = Liabilities + Owner’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.

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