Assets, generally long-term in nature, not intended to be converted to cash or used in the normal operation of the business
Financial Claims in Accounting
The owner’s claim to the assets of the business
The creditor’s claim to the assets of the business
Assets = Liabilities + Owner’s Equity
You can calculate amounts in a financial equation using the rules of algebra.
The basic accounting equation is in form of
a= b + c
To find either b or c ,
Rewrite the equation as
B= a - c, or c= a - b
A Matter of Ethics
Many companies provide office supplies for their employees’ use while on the job. Imagine that you work for a large department store like JC Penny. Several of your co-workers take company supplies home for their personal use, such as pens, bags, hangers, and boxes. You need boxes to store some items at home, so you consider taking them from the supply room.
A Matter of Ethics (cont.)
Ethical Decision Making
What are the ethical issues?
What are the alternatives?
Who are the affected parties?
How do the alternatives affect the parties?
What would you do?
Transactions that Affect Owner’s Investment, Cash and Credit Chapter 3 Section 2
What You Will Learn
How accounts are used in business transactions
The steps used to analyze business transactions
How investments by the owner effects the accounting equation.
What You Will Learn (cont.)
How a cash payment transaction affects the accounting equation.
How a credit transaction effects the accounting equation.
A business transaction is an economic event that causes a change
Either an increase or decrease
In assets, liabilities or owner’s equity
An account shows the balance for a specific item, such as cash or computer equipment.
It also is a record of increases or decreases for that specific item.
= + Assets Liabilities Owner’s Equity Cash in Bank Accounts Payable Maria Sanchez, Capital Accounts Receivable Computer Equipment Office Equipment Delivery Equipment
Accounts Receivable is the total amount of money owed to a business.
Accounts Payable is the amount of money owed, or payable to the creditors of a business.
Effects of Transaction on the Accounting Equation
ANALYSIS Identify 1. Identify the account affected Classify 2. Classify the account affected +/- 3. Determine the amount of increase or decrease for each account affected Balance 4. Make sure the accounting equation remains in balance
Every business transaction affects at least two accounts
After recording each transaction, the accounting equation must be in balance
Investment by the Owner
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.
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to her business as Office Equipment.
Cash Payment Transactions
Roadrunner issued a $3,000 check to purchase a computer system.
When a business buys an item on credit, it is buying on account.
You will learn about
Purchase on account
Sale on account
Payment made on account
Payment received on account
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
Roadrunner sold one telephone to Green Company for $200 on account.
Roadrunner issued a check for $350 in partial payment of the amount own to its creditor, North Shore Auto.
Roadrunner received and deposited a check for $200 from Green Co. The check received is full payment for the telephone sold on account in transaction 2.
Problem 3-2 Determining the Effects of Transactions on the Accounting Equation Asset = Liabilities + Owners's Equity Cash in bank Accounts Receivable Computer Equipment Office Funiture Accounts Payable Jan Swift, Capital 1. Jan Swift deposit $30,000 in a checking account to start the business 30000 30000 2. The owner transferred a desk and chair to the business value $700 700 700 3. WordService issued a check for $4,000 for the purchase of a computer -4000 4000 4. The office bought office furniture on account for $5,000 5000 5000 5. The desk and chair previously transferred to business sold on account for $700 700 -700 6. WordService wrote a check for $2000 in partial payment of the amount owed Eastern Furniture -2000 -2000 24000 700 4000 5000 3000 30700 33700 = 33700
Transactions that Affect Revenue, Expenses, and Withdrawals by the Owner Chapter 3 Section 3
What You Will Learn
How revenue transactions affect the accounting equation
How expenses transactions affect the accounting equation
How withdrawals by the owner affects the accounting equation.
Revenue and Expense
Income earned from sale of goods and services.
Increases owner equity because it increases the assets of the business
Price paid for goods and services used to operate the business
Decreases owner equity because they decrease assets or increase liability
Roadrunner receives a check for $12,000 from a customer, Sims Corporation, for delivery service.
Roadrunner wrote a check for $700 to rent for the month.
Withdrawal by the Owner
Withdrawal – owner take money from the business for personal use.
Maria Sanchez withdrew $500 from the business for her personal use
Withdrawal by owner is not the same as an expense, expense is cost of operating business.