Welcome,dear Students

“ Account Double – any Trouble”Accounting course for Beginnerswww.elearningpower.com

Business Transactions

Four transactions that effect Balance Sheet

Four Transactions that effect Income statement

Lesson 3 Learning Objectives

1

2

3

WHAT IT IS IMPORTANT

Accounts are used to analyzebusiness transactions.

Accounts receivable is the total amount of money owed to a businessAccounts payable is the amount owed, or payable, to the creditors of a business.

How businesses use accounts.The steps used to analyzea business transaction.

Owner’s equity is changedby revenue, expenses,investments, andwithdrawals.

How revenue andexpenses affect owner’sequity.

How withdrawals affectowner’s equity.

WHAT IS NEEDED UNDERSTAND

Lesson 3 : What You’ll Learn

Key Terms : business transaction

account

accounts receivable

accounts payable

investment

on account

revenue

expense

withdrawal

Summary: Basic Questions

What is my property ? • what are the sources of my business what a business owns what a business owes

Am I successful in business? • What I have made - a profit or loss

What is my property ?Property is anything of value that a person or business owns and therefore controls.

Property is measured in dollars. In accounting, property appears in the records at the amount it cost the owner.

Summary: Property ( assets )

What are the sources of my business ?Financial claims are the legal rights to property.

The term equities refers to the financial claims on assets (property).

The two types of equities in a business are• creditors’ financial claims, called liabilities, and• the owner’s financial claims, called owner’s equity.

Summary: Financial Claims

Summary: Do you remember ?The accounting equation is : ASSETS = LIABILITIES + OWNER’S EQUITY

Summary: Revenue and Expenses

Category 1

Category 2

Category 3

Category 4

0

1

2

3

4

5

Revenue and Expenses

Revenue ExpensesAm I successful in business? • What I have made - a profit or loss ?

How to find out ? - Compare Revenue and Expenses

Revenue is income from the sale of goods and services. Examples of revenue are fees earned for services performed and cash received from the sale of merchandise

To generate revenue most businesses must also incur expenses to buy goods, materials, and services.

An expense is the cost of products or services used to operate a business. Examples of business expenses are

• rent,• utilities, and• advertising.

Summary: Business Transactions

cash transactions investments by the owner

withdrawals by the owner

credit transactions

revenue and expense transactions

Most businesses have the following types of transactions:

A business transaction is an economic event that causes a change -either an increase or a decrease - in assets, liabilities, or owner’s equity.

Balance Sheet The main purpose of the balance sheet is to report the assets of the business and the claims against those assets on a specific date .The balance sheet summarizes the following information:

What a business owns and owes ? What is business worth ?

Income Statement The income statement reports the revenues and expenses for a period of time The excess of the revenue over the expenses is called net income or net profit. If the expenses exceed the revenue, the excess is a net loss.

Am I successful in business?

Two Main Financial Statements

Summary: Business transactions inside - Balance Sheet

There are four main types of transactions between assets and liabilities (and capital) on the balance sheet to be remembered:

1. + Assets + Liabilities (Capital)2. + Assets - Assets 3. - Liabilities - Assets 4. - Liabilities + Liabilities

+

Liabilities (and Capital)

_Liabilities

_Assets

+Assets

Summary: Business transactions between - Balance Sheet and Income Statement

There are four main types of transactions between Balance and Income Statement (and capital) to be remembered:

1. - Assets + Expenses (Withdrawals)

2. + Liabilities + Expenses3. + Assets + Revenue 4. - Liabilities + Revenue

+Liabilities

_Liabilities

+Expenses

_Assets

+Assets

+Revenues

8 Basic Business Transactions

Balance Sheet

Income Statement

+Assets +Liabilities

-Assets -Liabilities

+Expenses

+Revenue

1. + Assets + Liabilities (+Capital)

2. + Assets - Assets 3. - Liabilities - Assets 4. - Liabilities + Liabilities 5. - Assets + Expenses

(Withdrawals)

6. + Liabilities + Expenses7. + Assets + Revenue8. -Liabilities +Revenue

Nothing is so important in accounting as learn eight basic business transactions.If you can not, you have never learned accounting.

Summary: Use the following steps to analyze a business transaction:

Step 1• Identify the accounts

affected.

Step 2• Classify the accounts

affected.

Step 3• Determine the amount of

increase or decrease for each account affected.

Step 4Make sure the accounting equation remains in balance.

Follow next LessonThank you !Lesson 4 : Transactions that effect Assets, Liabilities and Owner’s Capital

Enroll NOWFor full version with lecturerwww.elearningpower.com