Accounting - Lesson 3 : The Business Transactions


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Accounting - Lesson 3 : The Business Transactions

  1. 1. Welcome, dear Students“ Account Double – any Trouble”Accounting course for
  2. 2. Lesson 3 Learning Objectives 1 Business Transactions 2 Four transactions that effect Balance Sheet 3 Four Transactions that effect Income statement
  3. 3. Lesson 3 : What You’ll LearnWHAT IT IS IMPORTANT WHAT IS NEEDED UNDERSTAND Owner’s equity is changedAccounts are used to analyze by revenue, expenses,business transactions. investments, andAccounts receivable is the total amount withdrawals.of money owed to a businessAccounts payable is the amount owed, How revenue andor payable, to the creditors of abusiness. expenses affect owner’s equity.How businesses use accounts. How withdrawals affectThe steps used to analyze owner’s equity.a business transaction.
  4. 4. Key Terms : business transaction  revenue account  expense accounts receivable  withdrawal accounts payable investment on account
  5. 5. 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
  6. 6. Summary: Property ( assets ) 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.
  7. 7. Summary: Financial Claims 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.
  8. 8. Summary: Do you remember ?The accounting equation is : ASSETS = LIABILITIES + OWNER’S EQUITY
  9. 9. Summary:Revenue and Expenses Revenue and ExpensesAm I successful in business?• What I have made - ​a profit or loss ? Revenue ExpensesHow to find out ? 5- Compare Revenue and Expenses 4Revenue is income from the sale of goods andservices. 3Examples of revenue are fees earned for servicesperformed and cash received from the sale ofmerchandise 2To generate revenue most businesses must also incur 1expenses to buy goods, materials, and services. 0An expense is the cost of products or services used tooperate a business. Examples of business expenses Category Category Categoryare 1 2 Category 3 4• rent,• utilities, and• advertising.
  10. 10. Most businesses have the following types of transactions:Summary:BusinessTransactions investments by the owner withdrawals by the owner credit transactions revenue and expense 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.
  11. 11. Two Main Financial Statements 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 Income Statement information: 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? What a business owns and owes ? What is business worth ?
  12. 12. Summary:Business transactions inside - Balance SheetThere are four main types of transactions between +assets and liabilities (and capital) on the balance Liabilitiessheet to be remembered: (and Capital) + _ Assets Liabilities1. + Assets + Liabilities (Capital)2. + Assets - Assets _3. - Liabilities - Assets Assets4. - Liabilities + Liabilities
  13. 13. Summary:Business transactions between - Balance Sheet +and Income Statement Liabilities _ There are four main types of transactions between Balance and Income Statement (and capital) to be Liabilitie remembered: s + + Revenues Expenses _ 1. - Assets + Expenses (Withdrawals) Assets 2. + Liabilities + Expenses + 3. + Assets + Revenue 4. - Liabilities + Revenue Assets
  14. 14. 8 Basic Business Transactions Balance Sheet Income StatementNothing is so important in accounting aslearn eight basic business transactions.If you can not, you have never learnedaccounting. +Assets +Liabilities +Expenses1. + Assets + Liabilities (+Capital)2. + Assets - Assets3. - Liabilities - Assets -Assets -Liabilities +Revenue4. - Liabilities + Liabilities5. - Assets + Expenses (Withdrawals)6. + Liabilities + Expenses7. + Assets + Revenue8. -Liabilities +Revenue
  15. 15. Summary: Use the following steps to analyzea 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 4 Make sure the accounting equation remains in balance.
  16. 16. Follow next LessonThank you !Lesson 4 : Transactions that effect Assets, Liabilities and Owner’s Capital Enroll NOW For full version with lecturer