1. Property and
Financial Claims
Chapter 3
Section 1

2. What You Will 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.

3. Key Terms
 Property
 Property rights
 Financial claims
 Credit
 Creditor
 Assets
 Equity
 Investments
 Owner equity
 Liabilities
 Accounting equation

4. Property: Ownership and Control
 Property is anything of value that is owned or
controlled.
Property Rights Financial Claim
Own Yes Yes
Control (like
rent)
Yes No

5. Property: Ownership and Control
 Property rights
 Creditors’ and owner’ financial claim to assets of the business
 Financial claims
 Legal rights to an items
Property
(Cost)
= Financial Claims
(Financial Investments)
Bike = Your claim to the Bike
$600 = $600

6. Property: Ownership and Control
 Credit – buying property and agreeing to pay for
it later.
 Creditor is the business or person selling you the
property on credit
Property Financial Claims
Bike
Lock
= Creditor’s
Financial Claim
+ Owners
Financial Claim
$100 = $40 + $60

7. Financial Claims in Accounting
 Assets
 Property or items of value owned by a business
 Equity
 The financial claim to these assets
 Investments
 Assets, generally long-term in nature, not intended to
be converted to cash or used in the normal operation
of the business

8. Financial Claims in Accounting
 Owner’s equity
The owner’s claim to the assets of the
business
 Liabilities
The creditor’s claim to the assets of the
business
 Accounting equation
Assets = Liabilities + Owner’s Equity

9. Math Hint
 Using Algebra
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

10. A Matter of Ethics
Company Policy
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.

11. 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?

12. Problem 3-1 Balancing the Accounting Equation
Assets Liabilities Owner's Equity
17,000 7000 10,000
26000 6000 20000
10,000 3,000 7000
26000 9000 17000
8,000 2000 6,000
20,000 7000 13,000
16000 12000 4000
30,000 8,000 22000
22,000 1000 21,000
25,000 5000 20,000
35000 10000 25000
7,500 4,500 3000

13. Transactions that
Affect Owner’s
Investment, Cash and
Credit
Chapter 3
Section 2

14. 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.

15. What You Will Learn (cont.)
 How a cash payment transaction affects
the accounting equation.
 How a credit transaction effects the
accounting equation.

16. Key Terms
 Business transaction
 Account
 Accounts receivable
 Accounts payable
 On account

17. Business Transactions
 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.

18. Assets Liabilities Owner’s Equity
Cash in Bank Accounts
Payable
Maria Sanchez,
Capital
Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment

19. Business Transactions
 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.

20. Effects of Transaction on the
Accounting Equation
 Business Transaction
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

21. Key Points
 Business Transactions
Every business transaction affects at least
two accounts
 In Balance
After recording each transaction, the
accounting equation must be in balance

22. Investment by the Owner
1. 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.
2. 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.

23. Cash Payment Transactions
1. Roadrunner issued a $3,000 check to
purchase a computer system.

24. Credit Transaction
 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

25. Business Transactions
1. Roadrunner bought a used truck on account from
North Shore Auto for $12,000.
2. Roadrunner sold one telephone to Green Company for
$200 on account.
3. Roadrunner issued a check for $350 in partial payment
of the amount own to its creditor, North Shore Auto.
4. 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.

26. 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

27. Transactions that Affect
Revenue, Expenses, and
Withdrawals by the Owner
Chapter 3
Section 3

28. 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.

29. Key Terms
 Revenue
 Expense
 Withdrawal

30. Revenue and Expense
 Revenue
 Income earned from sale of goods and services.
 Increases owner equity because it increases the
assets of the business
 Expenses
 Price paid for goods and services used to operate the
business
 Decreases owner equity because they decrease
assets or increase liability

31. Business Transaction
1. Roadrunner receives a check for
$12,000 from a customer, Sims
Corporation, for delivery service.
2. Roadrunner wrote a check for $700 to
rent for the month.

32. Withdrawal by the Owner
 Withdrawal – owner take money from the
business for personal use.
Business Transaction
 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.

33. Problem 3-3