Chapter 2 Changes that affect Owner’s Equity Accounting I Chapter 2 Changes that affect Owner’s Equity

TERMS REVIEW revenue sale on account expense withdrawals Lesson 2-1, page 29

TERMS REVIEW Revenue An increase in owner’s equity resulting from the operation of a business. Lesson 2-1, page 26

TERMS REVIEW Sale on Account A sale for which cash will be received at a later date. Lesson 2-1, page 26

TERMS REVIEW Realization of Revenue - concept Regardless of when cash is received, the revenue is recorded at the time of the sale. Lesson 2-1, page 26

TERMS REVIEW Expense A decrease in owner’s equity resulting from the normal operation of the business. Lesson 2-1, page 27

TERMS REVIEW Withdrawals Assets (not necessarily, but usually, cash) taken out of a business for the owner’s PERSONAL use. Lesson 2-1, page 28

Transaction 6 August 12. Received cash from sales, $325.00. REVENUE TRANSACTIONS Transaction 6 August 12. Received cash from sales, $325.00. Transaction 7 August 12. Sold services on account to Kids Time, $200.00. Lesson 2-1, page 26

Transaction 8 August 12. Paid cash for rent, $250.00. PAID CASH FOR EXPENSES Transaction 8 August 12. Paid cash for rent, $250.00. Transaction 9 August 12. Paid cash for telephone bill, $45.00. Lesson 2-1, page 27

OTHER TRANSACTIONS Transaction 10 August 12. Received cash on account from Kids Time, $100.00. –100 (withdrawal) Transaction 11 August 12. Paid cash to owner for personal use, $100.00. Lesson 2-1, page 28

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SUMMARY OF CHANGES IN OWNER’S EQUITY Transaction Change in Number Kind of Transaction Owner’s Equity 6 Revenue (cash) +325.00 7 Revenue (on account) +200.00 8 Expense (rent) –250.00 9 Expense (telephone) –45.00 11 Withdrawal –100.00 Net change in owner’s equity +130.00 Lesson 2-1, page 28

BALANCE SHEET PREPARATION 1. Write the heading. 1 2. Prepare the assets section. 2 3 3. Prepare the liabilities section. 4 6 4. Prepare the owner’s equity section. 5 7 8 5. Add and compare the totals. 6. Rule single lines. 7. Write the totals. 8. Rule double lines. Lesson 2-2, page 30

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