Presentation on theme: "Business Transactions and the Accounting Equation"— Presentation transcript:
1 Business Transactions and the Accounting Equation Chapter 3Business Transactions and the Accounting Equation
2 Property Financial Claim Anything of value that a person or business owns and therefore controls. Also Known As holdings, belongings, and real estate.Financial ClaimA legal right to an itemProperty (Cost)=Financial ClaimBikeYour Claim to the Bike$600This example is assuming you paid the entire amount and owe nothing to the original bike owner.
3 Creditor’s Financial Claim + Owner’s Financial Claim Credit & CreditorCredit – When you buy something and agree to pay for it later.Creditor – The person selling the item with the agreement to be paid part/all in the future.Financial Claim on Partial CreditYou bought a lock for $100. You paid $60 and promised to pay $40 at a later date.Property (Cost)=Financial ClaimBike LockCreditor’s Financial Claim + Owner’s Financial Claim$100$ $60The person who owns the item possess the item. However, if the owner doesn’t pay the creditor, then the creditor can exercise his/her right to claim the item and take it back.
4 The Accounting Equation Assets – The item of value (property)Liabilities – The creditor’s claim to the assetsOwner’s Equity – The owner’s claim to the assetsProperty (Cost)=Financial ClaimBike LockCreditor’s Financial Claim + Owner’s Financial Claim$100$ $60Assets=Liabilities Owner’s EquityBike LockCreditor’s Financial Claim + Owner’s Financial Claim$100$ $60
5 Balancing the Accounting Equation ASSETS=LIABILITIES+OWNER’S EQUITY$17,000$7,000$6,000$20,000$10,000$9,000$8,000$2,000$12,000$4,000$30,000$22,000$1,000$25,000$5,000$7,500$3,000
6 Transactions & Accounts Business Transaction – an economic event that causes a change in assets, liabilities, or owner’s equityAccount – a subdivision under assets, liabilities, or owner’s equity.Assets=Liabilities+Owner’s EquityCash in BankAccounts PayableMaria Sanchez, CapitalAccounts ReceivableComputer EquipmentOffice EquipmentDelivery EquipmentAccounts Receivable – the total amount of money due to be received by a businessAccounts Payable – the amount owed to the creditors of a business
7 Transaction’s Effect on the Accounting Equation Assets=Liabilities+Owner’s EquityOwner InvestmentCash TransactionCredit TransactionRevenue TransactionExpense TransactionWithdrawal by Owner
8 Transaction’s Effect on the Accounting Equation Assets=Liabilities+Owner’s EquityOwner Investment $25,000Cash for Office Equipment $400Cash Purchase of Computer Equipment $3,000Purchase Delivery Equipment on Credit $12,000Sold one of the telephones on account $200Wrote check to North Shore Auto $350 for Accounts PayableReceived account payment $200Equation Check
10 Revenue & Expense Transactions Revenue – income earned from the sale of goods or servicesInvestment – contribution to assets by the owner not through the sale of goods or servicesExpenses – the cost of products or services used to operate a businessWithdrawals by the OwnerSometimes called a drawing or a drawWhenever an owner takes an asset for personal use
11 Transaction’s Effect on the Accounting Equation Assets=Liabilities+Owner’s EquityReceived check for delivery services $1,200Wrote check for rent $700Owner withdrawals cash for personal use $500Equation Check