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Property and Financial Claims Chapter 3 Section 1.

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Presentation on theme: "Property and Financial Claims Chapter 3 Section 1."— Presentation transcript:

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 RightsFinancial Claim OwnYes Control (like rent) YesNo

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=

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 PropertyFinancial 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?

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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 AssetsLiabilitiesOwner’s Equity Cash in BankAccounts 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 ANALYSISIdentify 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, 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 ReceivableComputer EquipmentOffice FunitureAccounts PayableJan Swift, Capital 1. Jan Swift deposit $30,000 in a checking account to start the business The owner transferred a desk and chair to the business value $ WordService issued a check for $4,000 for the purchase of a computer The office bought office furniture on account for $5, The desk and chair previously transferred to business sold on account for $ WordService wrote a check for $2000 in partial payment of the amount owed Eastern Furniture =

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


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