business transactions and the accounting equation
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Business Transactions and the Accounting Equation
Business Transactions and the Accounting Equation
Making Accounting Relevant
Every business has assets, liabilities
(debts), and owner’s equity. Think
about a business in your community.
Making Accounting Relevant
Every business has assets, liabilities
(debts), and owner’s equity. Think
about a business in your community.
What possible assets does this business possess?What possible assets does this business possess?
Section 1Property and Financial Claims
Section 1Property and Financial Claims
What You’ll Learn
The relationship between property and financial claims.
The meaning of equity as it is used in accounting.
The parts of the accounting equation.
The definition of each part of the accounting equation.
What You’ll Learn
The relationship between property and financial claims.
The meaning of equity as it is used in accounting.
The parts of the accounting equation.
The definition of each part of the accounting equation.
Why It’s Important
The accounting equation is the basis for keeping all accounting records in balance.
Why It’s Important
The accounting equation is the basis for keeping all accounting records in balance.
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Key Terms property
property rights
financial claims
credit
creditor
assets
Key Terms property
property rights
financial claims
credit
creditor
assets
investments
equity
owner’s equity
liabilities
accounting equation
investments
equity
owner’s equity
liabilities
accounting equation
Property: Ownership and Control
Property is anything of value that is
owned or controlled.
Property: Ownership and Control
Property is anything of value that is
owned or controlled.
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Property FinancialRight Claim
Own Yes YesControl (like rent) Yes No
Property FinancialRight Claim
Own Yes YesControl (like rent) Yes No
Property: Ownership and Control (con’t.)
In accounting, property and financial
claims are measured in dollar amounts.
Property: Ownership and Control (con’t.)
In accounting, property and financial
claims are measured in dollar amounts.
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Property = Financial
(Cost) (Financial Investments)
Bike Lock = Your Claim to the Bike$600 = $600
Property = Financial
(Cost) (Financial Investments)
Bike Lock = Your Claim to the Bike$600 = $600
Property: Ownership and Control (con’t.)
When you buy property and agree to
pay for it later, you are buying on credit.
Property: Ownership and Control (con’t.)
When you buy property and agree to
pay for it later, you are buying on credit.
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Property = Financial Claims
Bike Creditor’s Owner’s Lock = Financial Claim + Financial Claim
$100 = $40 + $60
Property = Financial Claims
Bike Creditor’s Owner’s Lock = Financial Claim + Financial Claim
$100 = $40 + $60
Financial Claims in Accounting
Assets property or items
of value owned by a
business
Owner’s Equity the
owner’s claims to the
assets of the business
Liabilities creditor’s
claims to the assets of the
business
Financial Claims in Accounting
Assets property or items
of value owned by a
business
Owner’s Equity the
owner’s claims to the
assets of the business
Liabilities creditor’s
claims to the assets of the
business
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
The Accounting EquationThe Accounting Equation
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Creditor’s Owner’s
Financial Claim Financial Claim
Creditor’s Owner’s
Financial Claim Financial ClaimProperty = +
Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity
Check Your UnderstandingCheck Your Understanding
What is meant by having a
financial claim to property?
What is meant by having a
financial claim to property?
Section 1 Property and Financial Claims (con’t.)Section 1 Property and Financial Claims (con’t.)
Section 2Transactions That Affect Owner’s Investment, Cash, and Credit
Section 2Transactions That Affect Owner’s Investment, Cash, and CreditWhat You’ll Learn How accounts are used in business
transactions. The steps used to analyze business
transactions. How investments by the owner affect
the accounting equation. How a cash payment transaction affects
the accounting equation. How a credit transaction affects the
accounting equation.
What You’ll Learn How accounts are used in business
transactions. The steps used to analyze business
transactions. How investments by the owner affect
the accounting equation. How a cash payment transaction affects
the accounting equation. How a credit transaction affects the
accounting equation.
Why It’s Important
You can analyze real-world business
transactions by using the accounting
equation.
Why It’s Important
You can analyze real-world business
transactions by using the accounting
equation.
Key Terms business transactions account accounts receivable accounts payable on account
Key Terms business transactions account accounts receivable accounts payable on account
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Business TransactionsBusiness Transactions
An economic event that causes a
change — either an increase or a
decrease — in assets, liabilities, or
owner’s equity.
The increases and decreases
caused by business transactions are
recorded in specific accounts.
Accounts may be classified as either
assets, liabilities, or owner’s equity.
An economic event that causes a
change — either an increase or a
decrease — in assets, liabilities, or
owner’s equity.
The increases and decreases
caused by business transactions are
recorded in specific accounts.
Accounts may be classified as either
assets, liabilities, or owner’s equity.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Business Transactions (con’t.)Business Transactions (con’t.)
Assets = Liabilities + Owner’s Equity
Cash in Bank Accounts Maria Sanchez,
Accounts Receivable Payable Capital
Computer Equipment
Office Equipment
Delivery Equipment
Assets = Liabilities + Owner’s Equity
Cash in Bank Accounts Maria Sanchez,
Accounts Receivable Payable Capital
Computer Equipment
Office Equipment
Delivery Equipment
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Effects of Business Transactions on the Accounting Equation
Analyzing business transactions:
Effects of Business Transactions on the Accounting Equation
Analyzing business transactions:
Business Transaction
ANALYSIS Identify
Classify
+ / -
Balance
1. Identify the accounts affected.2. Classify the accounts affected.3. Determine the amount of increase
or decrease for each account.4. Make sure the accounting
equation remains in balance.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the OwnerInvestments by the Owner
Business Transaction 1
ANALYSIS Identify 1. Cash transactions are recorded in the account Cash in Bank. Maria Sanchez is investing personal funds in the business. Her investment in the business is recorded in the account called Maria Sanchez, Capital.
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 1 (con’t.)
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
ANALYSIS Classify 2. Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s equity account.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 1 (con’t.)
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
ANALYSIS + / – 3. Cash in Bank is increased by $25,000. Maria Sanchez, Capital is increased by $25,000.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 1 (con’t.)
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash in Bank Maria Sanchez, Capital
Trans. 1 +$25,000 = 0 + +$25,000
Assets = Liabilities + Owner’s Equity
Cash in Bank Maria Sanchez, Capital
Trans. 1 +$25,000 = 0 + +$25,000
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 2
ANALYSIS Identify 1. The business received two telephones. Since a telephone is office equipment, the account Office Equipment is affected. Maria Sanchez invested a personal asset in the business, so the account Maria Sanchez, Capital is affected.
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 2 (con’t.)
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment.
ANALYSIS Classify 2. Office Equipment is an asset account. Maria Sanchez, Capital is an owner’s equity account.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 2 (con’t.)
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment.
ANALYSIS + / – 3. Office Equipment is increased by $400. Maria Sanchez, Capital is increased by $400.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Investments by the Owner (con’t.)Investments by the Owner (con’t.)
Business Transaction 2 (con’t.)
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash Office Maria Sanchez, in Bank Equip. Capital
Prev. Bal. $25,000 0 0 $25,000
Trans. 2 +400 +400
Balance $25,000 + $400 = 0 + $25,400
Assets = Liabilities + Owner’s Equity
Cash Office Maria Sanchez, in Bank Equip. Capital
Prev. Bal. $25,000 0 0 $25,000
Trans. 2 +400 +400
Balance $25,000 + $400 = 0 + $25,400
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Cash Payment TransactionsCash Payment Transactions
Business Transaction 3
ANALYSIS Identify 1. The Computer Equipment account is used to record transactions involving any type of computer equipment. The business paid cash for the computer system, so the account Cash in Bank is affected. (Payments made by check are treated as cash payments and are recorded in the Cash in Bank account.)
Roadrunner issued a $3,000 check to purchase a computer system.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Cash Payment Transactions (con’t.)Cash Payment Transactions (con’t.)
Business Transaction 3 (con’t.)
Roadrunner issued a $3,000 check to purchase a computer system.
ANALYSIS Classify 2. Computer Equipment and Cash in Bank are both asset accounts.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Cash Payment Transactions (con’t.)Cash Payment Transactions (con’t.)
Business Transaction 3 (con’t.)
Roadrunner issued a $3,000 check to purchase a computer system.
ANALYSIS + / – 3. Computer Equipment is increased by $3,000. Cash in Bank is decreased by $3,000.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Cash Payment Transactions (con’t.)Cash Payment Transactions (con’t.)
Business Transaction 3 (con’t.)
Roadrunner issued a $3,000 check to purchase a computer system.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s EquityCash Computer Office Maria Sanchez,
in Bank Equip. Equip. Capital
Prev. Bal. $25,000 0 $400 0 $25,400
Trans. 3 – 3,000 +3,000
Balance $22,000 + $3,000 + $400 = 0 + $25,400
Assets = Liabilities + Owner’s EquityCash Computer Office Maria Sanchez,
in Bank Equip. Equip. Capital
Prev. Bal. $25,000 0 $400 0 $25,400
Trans. 3 – 3,000 +3,000
Balance $22,000 + $3,000 + $400 = 0 + $25,400
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Credit TransactionsCredit Transactions
Business Transaction 4
ANALYSIS Identify 1. Roadrunner purchased a truck to be used as a delivery vehicle, so the account, Delivery Equipment is affected. The business promised to pay for the truck at a later time. This promise to pay is a liability; therefore, the Accounts Payable is affected.
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Credit Transactions (con’t.)Credit Transactions (con’t.)
Business Transaction 4 (con’t.)
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
ANALYSIS Classify 2. Delivery Equipment is an asset account. Accounts Payable is a liability account.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Credit Transactions (con’t.)Credit Transactions (con’t.)
Business Transaction 4 (con’t.)
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
ANALYSIS + / – 3. Delivery Equipment is increased by $12,000. Accounts Payable is also increased by $12,000.
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Credit Transactions (con’t.)Credit Transactions (con’t.)
Business Transaction 4 (con’t.)
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash Computer Office Delivery Accounts Maria Sanchez, in Bank Equip. Equip. Equip. Payable Capital
Prev. Bal. $25,000 +3,000 $400 0 0 $25,400
Trans. 4 – +12,000 +12,000
Balance $22,000 + $3,000 + $400 +$12,000 = $12,000 + $25,400
Assets = Liabilities + Owner’s Equity
Cash Computer Office Delivery Accounts Maria Sanchez, in Bank Equip. Equip. Equip. Payable Capital
Prev. Bal. $25,000 +3,000 $400 0 0 $25,400
Trans. 4 – +12,000 +12,000
Balance $22,000 + $3,000 + $400 +$12,000 = $12,000 + $25,400
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Check Your UnderstandingCheck Your Understanding
When a business transaction
occurs, what is the role of the
accountant or accounting clerk?
When a business transaction
occurs, what is the role of the
accountant or accounting clerk?
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (con’t.)
Section 3Transactions That Affect Revenue, Expense, and Withdrawals by theOwner
Section 3Transactions That Affect Revenue, Expense, and Withdrawals by theOwnerWhat You’ll Learn
How revenue transactions affect the accounting equation.
How expense transactions affect the accounting equation.
How withdrawals by the owner affect the accounting equation.
What You’ll Learn
How revenue transactions affect the accounting equation.
How expense transactions affect the accounting equation.
How withdrawals by the owner affect the accounting equation.
Why It’s Important
The experience you gain by analyzing
revenue, expense, and withdrawal
transactions will help you analyze
transactions in real-world situations.
Why It’s Important
The experience you gain by analyzing
revenue, expense, and withdrawal
transactions will help you analyze
transactions in real-world situations.
Key Terms
revenue
expense
withdrawal
Key Terms
revenue
expense
withdrawal
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Revenue and Expense TransactionsRevenue and Expense Transactions
Income earned from the sale of
goods or services is revenue.
An expense is the price paid for
goods or services used to operate
a business.
Income earned from the sale of
goods or services is revenue.
An expense is the price paid for
goods or services used to operate
a business.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Revenue TransactionRevenue Transaction
Business Transaction 8
ANALYSIS Identify 1. Roadrunner received cash, so Cash in Bank is affected. The payment received is revenue. Revenue increases owner’s equity, so Maria Sanchez, Capital is also affected.
Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Revenue Transaction (con’t.)Revenue Transaction (con’t.)
Business Transaction 8 (con’t.)
Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.
ANALYSIS Classify 2. Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s equity account.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Revenue Transaction (con’t.)Revenue Transaction (con’t.)
Business Transaction 8 (con’t.)
Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.
ANALYSIS + / – 3. Cash in Bank is increased by $1,200. Maria Sanchez, Capital is also increased by $1,200.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Revenue Transaction (con’t.)Revenue Transaction (con’t.)
Business Transaction 8 (con’t.)
Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $21,850 $0 $3,000 $200 $12,000 $11,650 $25,400
Trans. 8 +1,200 +1,200
Balance $23,050 + $0 + $3,000 + $200 + $12,000 = $11,650 + $26,600
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $21,850 $0 $3,000 $200 $12,000 $11,650 $25,400
Trans. 8 +1,200 +1,200
Balance $23,050 + $0 + $3,000 + $200 + $12,000 = $11,650 + $26,600
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Expense TransactionExpense Transaction
Business Transaction 9
ANALYSIS Identify 1. Roadrunner pays rent for use of building space. Rent is an expense. Expenses decrease owner’s equity, so the account Maria Sanchez, Capital is affected. The business is paying cash for the use of the building, so Cash in Bank is affected.
Roadrunner wrote a check for $700 to pay the rent for the month.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Expense Transaction (con’t.)Expense Transaction (con’t.)
Business Transaction 9 (con’t.)
Roadrunner wrote a check for $700 to pay the rent for the month.
ANALYSIS Classify 2. Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Expense Transaction (con’t.)Expense Transaction (con’t.)
Business Transaction 9 (con’t.)
Roadrunner wrote a check for $700 to pay the rent for the month.
ANALYSIS + / – 3. Maria Sanchez, Capital is decreased by $700. Cash in Bank is decreased by $700.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Expense Transaction (con’t.)Expense Transaction (con’t.)
Business Transaction 9 (con’t.)
Roadrunner wrote a check for $700 to pay the rent for the month.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $23,050 $0 $3,000 $200 $12,000 $11,650 $26,600
Trans. 8 – 700 – 700
Balance $22,350 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,900
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $23,050 $0 $3,000 $200 $12,000 $11,650 $26,600
Trans. 8 – 700 – 700
Balance $22,350 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,900
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Withdrawals by the Owner
If a business earns revenue, the
owner will take cash or other assets from
the business for personal use. This
transaction is called a withdrawal.
Withdrawals by the Owner
If a business earns revenue, the
owner will take cash or other assets from
the business for personal use. This
transaction is called a withdrawal.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)
Business Transaction 10
ANALYSIS Identify 1. A withdrawal decreases the owner’s claim to the assets of the business, so Maria Sanchez, Capital is affected. Cash is paid out, so the Cash in Bank account is affected.
Maria Sanchez withdrew $500 from the business for her personal use.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)
Business Transaction 10 (con’t.)
Maria Sanchez withdrew $500 from the business for her personal use.
ANALYSIS Classify 2. Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)
Business Transaction 10 (con’t.)
Maria Sanchez withdrew $500 from the business for her personal use.
ANALYSIS + / – 3. Maria Sanchez, Capital is decreased by $500. Cash in Bank is decreased by $500.
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)
Business Transaction 10 (con’t.)
Maria Sanchez withdrew $500 from the business for her personal use.
ANALYSIS Balance 4. The accounting equation remains in balance.
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $22,350 $0 $3,000 $200 $12,000 $11,650 $25,900
Trans. 8 – 500 – 500
Balance $21,850 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,400
Assets = Liabilities + Owner’s Equity
Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital
Prev. Bal. $22,350 $0 $3,000 $200 $12,000 $11,650 $25,900
Trans. 8 – 500 – 500
Balance $21,850 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,400
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Check Your UnderstandingCheck Your Understanding
1. What effect does revenue have on
a business?
1. What effect does revenue have on
a business?
2. What effect do withdrawals have on
a business?
2. What effect do withdrawals have on
a business?
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)
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