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Any item of property has at least one financial claim against it 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. Home Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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. Home Glencoe Accounting Glencoe Accounting Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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

Property The purpose of accounting is to provide: Property and Financial Claims Section 3.1 Financial information about property The purpose of accounting is to provide: Financial claim to property property Anything of value that a person or business owns. financial claim A legal right to property. Home Glencoe Accounting

= Property Financial Claims Property Property and Financial Claims Section 3.1 = Financial Claims Property Home Glencoe Accounting

The financial claim is shared. Property Property and Financial Claims Section 3.1 A creditor lends you money. The financial claim is shared. You buy something on credit. credit When you buy something and agree to pay for it later. creditor Any person or business to which you owe money. Home Glencoe Accounting

Property Property and Financial Claims Section 3.1 Home Glencoe Accounting

Financial Claims in Accounting Property and Financial Claims Section 3.1 Land assets Property or items of value owned by a business. Buildings Cash Assets Manufacturing Equipment Office Equipment Home Glencoe Accounting

Financial Claims in Accounting Property and Financial Claims Section 3.1 Owner’s Equity Equity equity The accounting term for the financial claim to assets. owner’s equity The owner’s claim to the assets of a business. Home 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. Home Glencoe Accounting

Key Terms business transaction account accounts receivable Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Key Terms business transaction account accounts receivable accounts payable investment on account Home Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Buying a sweater or putting cash in your savings account are examples of business transactions. business transaction An economic event that causes a change—either an increase or decrease—in assets, liabilities, and/or owner’s equity. Home Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Accounts receivable A business records changes in subdivisions called accounts. Accounts payable account A subdivision under assets, liabilities, or owner’s equity. Home Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Accounts receivable A business records changes in subdivisions called accounts. 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. Home Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Steps for analyzing a business transaction Make sure the accounting equation remains in balance. 4 Determine the amount of increase or decrease for each account affected. 3 2 Classify the accounts affected. 1 Identify the accounts affected. Home Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a cash investment transaction: 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 investment Money or other property paid out in order to produce a profit. Home Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Business Transaction 2 Christa Vargas transferred two telephones valued at $200 each from her home to the business. See page 59 Home Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a cash purchase business transaction: Business Transaction 3 Zip issued a $3,000 check to purchase a computer system. See page 59 Home Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a purchase on account business transaction: Business Transaction 4 Zip bought a used truck on account from Coast to Coast Auto for $12,000. See page 60 on account When a business buys an item on credit. Home Glencoe Accounting

Key Terms revenue expense withdrawal Section 3.3 Home Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3 Key Terms revenue expense withdrawal Home Glencoe Accounting

Revenue and Expense Transactions Transaction That Affect Revenue, Expense, and Withdrawals by the Owner 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. Home Glencoe Accounting

Revenue and Expense Transactions Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3 Examples of Expenses Rent Utilities Advertising expense The cost of products or services used to operate a business. Home Glencoe Accounting

Withdrawals by the Owner Transaction That Affect Revenue, Expense, and 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. Home Glencoe Accounting

Step 1 Step 2 Step 3 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. $9,500 + $500 + $3,500 + $75,000 + $450,000 = $538,500 Step 2 Calculate total liabilities. $2,500 + $200,000 = $205,500 Step 3 Calculate owner’s equity. $538,500 - $202,500 = $336,000 Home Glencoe Accounting

Question 2 A business owner invests $12,000 cash in the business. How would you analyze this transaction? Identify the accounts affected. a. Cash in Bank is affected. b. Owner’s Capital is affected. Classify the accounts affected. a. Cash in Bank is an asset account. b. Owner’s Capital is an owner’s equity account. 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. Make sure the accounting equation remains in balance. Assets = Liabilities + Owner’s Equity $12,000 = 0 + $12,000 Home Glencoe Accounting

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