2. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Any item of property has at least one financial claim against it. Accounts are used to analyze business transactions. Owner’s equity is changed by revenue, expenses, and withdrawals.

3. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Describe the relationship between property and financial claims Explain the meaning of the term equities as it is used in accounting. List and define each part of the accounting equation. Learn how businesses use accounts. Demonstrate the effects of transactions on the accounting equation. Check the balance of the accounting equation after a business transaction has been analyzed and recorded. Glencoe AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Glencoe Accounting Key Terms property financial claim credit creditor Section 3.1 Property and Financial Claims assets equity owner’s equity liabilities

5. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Property Property and Financial Claims Section 3.1 The purpose of accounting is to provide: Financial information about property Financial claim to property property Anything of value that a person or business owns. financial claim A legal right to property.

6. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Property Property and Financial Claims Section 3.1 Property = Financial Claims

7. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Property Property and Financial Claims Section 3.1 A creditor lends you money. You buy something on credit. The financial claim is shared. credit When you buy something and agree to pay for it later. creditor Any person or business to which you owe money.

8. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Property Property and Financial Claims Section 3.1

9. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Financial Claims in Accounting Property and Financial Claims Section 3.1 Assets Cash Office Equipment Manufacturing Equipment Buildings Land assets Property or items of value owned by a business.

10. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Financial Claims in Accounting Property and Financial Claims Section 3.1 Equity Owner’s Equity equity The accounting term for the financial claim to assets. owner’s equity The owner’s claim to the assets of a business.

11. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Financial Claims in Accounting Property and Financial Claims Section 3.1 The Accounting Equation liabilities Amounts owed to creditors; the claims of creditors to the assets of a business.

12. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms business transaction account accounts receivable accounts payable investment on account Transaction That Affect Owner’s Investment, Cash, and Credit Section 3.2

13. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Business Transactions business transaction An economic event that causes a change—either an increase or decrease—in assets, liabilities, and/or owner’s equity. Section 3.2 Buying a sweater or putting cash in your savings account are examples of business transactions. Transaction That Affect Owner’s Investment, Cash, and Credit

14. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Business Transactions Section 3.2 A business records changes in subdivisions called accounts. Accounts receivable Accounts payable account A subdivision under classification of assets, liabilities, or owner’s equity. Transaction That Affect Owner’s Investment, Cash, and Credit

15. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Business Transactions A business records changes in subdivisions called accounts. Accounts receivable Accounts payable accounts receivable The total amount of money owed to a business—money to be received later because of the sale of goods or services on credit. accounts payable The amount owed, or payable, to the creditors of a business. Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit

16. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Business Transactions Section 3.2 Steps for analyzing a business transaction Identify the accounts affected. Classify the accounts affected. Determine the amount of increase or decrease for each account affected. Make sure the accounting equation remains in balance. Transaction That Affect Owner’s Investment, Cash, and Credit 1 2 3 4

17. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze a cash investment transaction: investment Money or other property paid out in order to produce a profit. Business Transaction 1 Christa Vargas took $25,000 from personal savings and deposited that amount to open a business checking account in the name Zip Delivery Service. See page 58 Transaction That Affect Owner’s Investment, Cash, and Credit

18. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Business Transaction 2 Christa Vargas transferred two telephones valued at $200 each from her home to the business. See page 59 Transaction That Affect Owner’s Investment, Cash, and Credit

19. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze a cash purchase business transaction: Business Transaction 3 Zip issued a $3,000 check to purchase a computer system. See page 59 Transaction That Affect Owner’s Investment, Cash, and Credit

20. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze a purchase on account business transaction: on account When a business buys an item on credit. Business Transaction 4 Zip bought a used truck on account from Coast to Coast Auto for $12,000. See page 60 Transaction That Affect Owner’s Investment, Cash, and Credit

21. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms revenue expense withdrawal Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3

22. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Do Demonstration Problem 3-5 Exercises 1-6 together Glencoe Accounting

23. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Revenue and Expense Transactions Section 3.3 Examples of Revenue Fees earned for services performed Cash received from the sale of merchandise revenue Income earned from the sale of goods or services. Transaction That Affect Revenue, Expense, and Withdrawals by the Owner

24. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Revenue and Expense Transactions Section 3.3 Examples of Expenses Rent Utilities Advertising expense The cost of products or services used to operate a business. Transaction That Affect Revenue, Expense, and Withdrawals by the Owner

25. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Withdrawals by the Owner Section 3.3 Withdrawals decrease assets and owner’s equity. Investments increase assets and owner’s equity. withdrawal When the owner takes cash or other assets from the business for personal use. Transaction That Affect Revenue, Expense, and Withdrawals by the Owner

26. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 1 O’Donnell’s Car Wash has the following assets and liabilities. Assets: Cash in Bank $9,500; Accounts Receivable $500; Computer Equipment $3,500; Car Wash Equipment $75,000; Building $450,000 Liabilities: Alto’s Equipment Service $2,500; First National Bank (mortgage on building) $200,000 What is the owner’s equity for O’Donnell’s? Step 1 Calculate total assets. Step 2 Calculate total liabilities. Step 3 Calculate owner’s equity. $9,500 + $500 + $3,500 + $75,000 + $450,000 = $538,500 $538,500 - $202,500 = $336,000 $2,500 + $200,000 = $202,500

27. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 2 A business owner invests $12,000 cash in the business. How would you analyze this transaction? 1.Identify the accounts affected. a. Cash in Bank is affected. b. Owner’s Capital is affected. 2.Classify the accounts affected. a. Cash in Bank is an asset account. b. Owner’s Capital is an owner’s equity account. 3.Determine the amount of increase or decrease for each account affected. a.Cash in Bank is increased by $12,000. b.Owner’s Capital is increased by $12,000. 4.Make sure the accounting equation remains in balance. Assets = Liabilities + Owner’s Equity $12,000 = 0 + $12,000

28. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze a revenue transaction: Business Transaction 5 Christa Vargas received a check for $1,200 from a customer, Sims Corporation, for delivery services. Transaction That Affect Owner’s Investment, Cash, and Credit Trans. 5

29. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze an expense transaction: Business Transaction 6 Zip Delivery service wrote a check for $700 to pay the rent for the month. Transaction That Affect Owner’s Investment, Cash, and Credit Trans. 6

30. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Transactions and the Accounting Equation Section 3.2 Analyze a withdrawal transaction: Business Transaction 7 Christa Vargas withdrew $500 from the business for her personal use. Transaction That Affect Owner’s Investment, Cash, and Credit Trans. 7

31. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Are expense and withdrawals transactions basically the same thing? Why or why not? Glencoe Accounting

32. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finish Demonstration Problems 7-9 Glencoe Accounting