1. LESSON 2-1 Analyzing How Transactions Affect Owner’s Equity Accounts
Chapter 2-3
4/24/2017
Analyzing How Transactions
Affect Owner’s Equity Accounts

2. RECEIVED CASH FROM SALES
page 38
August 12. Received cash from sales, $
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3. SOLD SERVICES ON ACCOUNT
page 39
August 12. Sold services on account to Oakdale School, $
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4. Analyzing Transactions 2-3
LESSON 2-1
4/24/2017
Analyzing Transactions 2-3
Received cash from sales, $400.00
Revenue makes Owner’s Equity increase.
Assets = Liabilities Owner’s Equity
Cash Sales
Debit Credit Debit Credit
N. Bal Normal Bal.
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5. Analyzing Transactions
LESSON 2-1
4/24/2017
Analyzing Transactions
Sold services on account to Kids Time, $500.00
Assets = Liabilities + Owner’s Equity
A.R. Kids Time Sales
Debit Credit Debit Credit
N. Bal Normal Bal.
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6. Analyzing Transactions --Use the four questions.
LESSON 2-1
4/24/2017
Analyzing Transactions --Use the four questions.
Received cash on account from Kids Time, $100.00
Assets = L + OE
Cash A.R. Kids Time
Debit Credit Debit Credit
N. Bal N. Bal
$ $100.00
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7. Analyzing Expense Transactions
LESSON 2-1
4/24/2017
Analyzing Expense Transactions
Expenses decrease owner’s equity.
The decreases from expenses could be recorded directly in the Owner’s Equity account.
But, the OE account would have too many entries.
Using separate accounts for each helps to keep information straight.
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8. Analyzing Expense Transactions
LESSON 2-1
4/24/2017
Analyzing Expense Transactions
The owner’s capital account has a normal credit balance.
Decreases in the owner’s capital account are shown as debits.
Therefore, an expense account has a normal debit balance.
Expenses are always debited.
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9. PAID CASH FOR AN EXPENSE
page 40
August 12. Paid cash for rent, $
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10. Analyzing Transactions
LESSON 2-1
4/24/2017
Analyzing Transactions
Paid cash for rent, $
Expenses decrease Owner’s Equity--so an expense account’s normal balance side is the left side.
Assets = Liabilities + Owner’s Equity
Cash Rent Expense
Debit Credit Debit Credit
N. Bal Normal Bal.
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11. Owner’s Taxable Income
LESSON 2-1
4/24/2017
Owner’s Taxable Income
A business owned by one person is called a proprietorship.
The IRS does not require the proprietorship, itself, to pay taxes.
However, the owner must include the net income of the proprietorship in his or her own taxable income.
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12. LESSON 2-1
4/24/2017
Owner Withdrawals
Employee salaries are considered an expense that reduces the net income of a company.
Owner withdrawals are not considered an expense.
Withdrawals do not affect the business’s income.
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13. PAID CASH TO OWNER FOR PERSONAL USE
page 42
August 12. Paid cash to owner for personal use, $
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14. Analyzing Transactions
LESSON 2-1
4/24/2017
Analyzing Transactions
Paid cash to owner for personal use,
Withdrawals decrease Owner’s Equity--so a drawing account’s normal balance is the left side.
Assets = Liab. + Owner’s Equity
Cash Taylor Stalter, Drawing
Debit Credit Debit Credit
N. Bal Normal Bal.
Withdrawals could be recorded directly in the owner’s capital account. Using a separate Drawing account helps keep information separate.
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15. Audit Your Understanding
What two accounts are affected when a business receives cash from sales?
Cash and Sales
What two accounts are affected when services are sold on account.
Sales and Accounts Receivable
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16. Audit Your Understanding
What two accounts are affected when a business pays cash to the owner for personal use?
Owner’s drawing account and Cash
Are revenue accounts increased on the debit side or credit side? Explain why.
Credit side because sales increase owner’s equity
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17. Audit Your Understanding
Are expense accounts increased on the debit side or credit side. Explain why.
Debit side because expenses decrease owner’s equity.
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18. Work Together, 3-3
On My Website
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