LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation.

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LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation

Transcript of LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation.

LESSON 1-3How Transactions Change Owner’s Equity

in an Accounting Equation

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THE ACCOUNTING EQUATION

page 8

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Accounting Concept

• Business Entity– Financial information is recorded and

reported separately from the owner’s personal financial information

• Unit of Measurement– Business transactions are stated in

numbers that have common values – that is, using a common unit of measurement.

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Classifications

• Accounts Receivable– ASSET

• Accounts Payable– LIABILITY

• Prepaid Insurance– ASSET

• Capital– OWNER’S EQUITY

• Cash– ASSET

• Supplies– ASSET

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Classifications

• Accounts Receivable– ASSET

• Accounts Payable– LIABILITY

• Prepaid Insurance– ASSET

• Capital– OWNER’S EQUITY

• Cash– ASSET

• Supplies– ASSET

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Owner’s Equity

• Capital – Increase– Cash deposits by owner– Assets donated by owner (ex: equipment)

• Withdraws – Decrease– Cash withdrawn for personal use by owner– Assets taken for personal use by owner

• Revenue – Increase– Sales– Income– Fees

• Expenses – Decrease– Rent– Utilities– Advertising

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Accounting Concept

• Realization of Revenue– Revenue is Recorded at the time goods

or services are sold

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Sales

Asset = Liabilities+

Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Received cash from sales, $295.00

Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

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Sales on Account

Asset = Liabilities+

Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Sold services on account to Oakdale School, $350.00

Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

+350.00 +350.003,520.00 350.00 775.00 200.00 $5,645.001,200.00

revenue

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Rent

Asset = Liabilities+

Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Paid cash for rent, $300.00

Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

+350.00 +350.003,520.00 350.00 775.00 200.00 $5,645.001,200.00

revenue

-300.00 -300.003,220.00 350.00 775.00 200.00 $5,345.001,200.00

expense

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Telephone Asset = Liabilitie

s+Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Paid cash for telephone bill, $40.00

Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

+350.00 +350.003,520.00 350.00 775.00 200.00 $5,645.001,200.00

revenue

-300.00 -300.003,220.00 350.00 775.00 200.00 $5,345.001,200.00

expense

-40.00 -40.003,180.00 350.00 775.00 200.00 $5,305.001,200.00

expense

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Receipts Asset = Liabilitie

s+Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Received cash on account from Oakdale School, $200.00Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

+350.00 +350.003,520.00 350.00 775.00 200.00 $5,645.001,200.00

revenue

-300.00 -300.003,220.00 350.00 775.00 200.00 $5,345.001,200.00

expense

-40.00 -40.003,180.00 350.00 775.00 200.00 $5,305.001,200.00

expense

-200.00 +200.003,380.00 150.00 775.00 200.00 $5,305.001,200.00

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Withdrawals

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Withdrawals Asset = Liabilitie

s+Owner’s Equity

Cash AR – Oakdale School

Supplies

Prepaid Insurance

AP – Supply Depot

Kim Park, Capital

+295.00$3,225.00 $5,000.00

+295.00

August 12. Paid cash to owner for personal use, $125.00Calculate the new balance

3,520.00 00.00 775.00 200.00 $5,295.00

200.00 775.00 1,200.00

1,200.00

00.00revenue

+350.00 +350.003,520.00 350.00 775.00 200.00 $5,645.001,200.00

revenue

-300.00 -300.003,220.00 350.00 775.00 200.00 $5,345.001,200.00

expense

-40.00 -40.003,180.00 350.00 775.00 200.00 $5,305.001,200.00

expense

-200.00 +200.003,380.00 150.00 775.00 200.00 $5,305.001,200.00

-125.00 -125.003,255.00 150.00 775.00 200.00 $5,180.001,200.00

withdrawal

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Classifications

•Accounts Receivable– ASSET

•Sales– REVENUE

•Accounts Payable– LIABILITY

•Rent Expense– EXPENSE

•Prepaid Insurance– ASSET

•Drawing– OWNER’S EQUITY

•Utilities Expense– EXPENSE

•Cash– ASSET

•Capital– OWNER’S

EQUITY

•Advertising Expense

– EXPENSE

•Supplies– ASSET

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Classifications

• Accounts Receivable

– ASSET

• Sales– REVENUE

• Accounts Payable– LIABILITY

• Rent Expense– EXPENSE

• Prepaid Insurance– ASSET

• Drawing– OWNER’S EQUITY

•Utilities Expense– EXPENSE

•Cash– ASSET

•Capital– OWNER’S

EQUITY

•Advertising Expense

– EXPENSE

•Supplies– ASSET

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Work Together 1-3

Workbook page 9

Textbook page 17

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Asset = Liabilities+

Owner’s Equity

Cash AR – Navarro Co.

Supplies

Prepaid Insurance

AP – Barrett Co.

Vincent Orr, Capital

+

-

-

+

-

++

Sales/revenue

-

Utility/expense

-withdrawal/OE

+

Sales/revenue

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Class Work

On Your Own 1-3

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Asset = Liabilities+

Owner’s Equity

Cash AR – Navarro Co.

Supplies

Prepaid Insurance

AP – Barrett Co.

Vincent Orr, Capital

+ -

-

+

-

++

Sales/revenue

-

Rent/expense

-withdrawal/OE

+

Sales/revenue

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Stereo

Asset =

Liability +

Owner’s Equity

1. Buy a stereo that costs $3,000.00

2. You have a down payment of $500.00

3. You borrow the rest from the bank.

$3,000.00 $500.00$2,500.00

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Homework

Application 1-3

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TERMS REVIEW

• revenue• sale on account• expense• withdrawals

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