Transactions that affect owner’s Investment, cash & Credit Chapter 3 Section 2

Business Transactions Economic event that causes a change-either an increase or a decrease in assets, liabilities or Owner’s Equity Assets = Liabilities + Owner’s Equity Examples: Business buys a computer with cash Sell hotdogs for cash EACH TYPE OF TRANSACTION IS RECORDED IN A SPECIFIC ACCOUNT

Accounts The type of business will determine how many accounts will be used Regardless of how many accounts are used—all will be classified as either: Asset Liability Owner’s Equity

Accounts Assets Liabilities Owner’s Equity Cash in Bank Accounts Payable Maria Sanchez, Capital Accounts Receivable Computer Equipment Office Equipment Delivery Equipment Which accounts do you not recognize?

Steps to Analyze Transactions 1. Identify the accounts affected 2. Classify the accounts affected 3. Determine the amount of increase or decrease for each account affected. 4. Make sure the accounting equation remains in balance

Business Transaction #1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. Step 1: Identify the accounts affected Cash in bank Maria Sanchez, Capital Step 2: Classify the accounts affected Cash in bank—asset Maria Sanchez, Capital—Owner’s Equity

Business Transaction #1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. Step 3: Determine the amount of increase or decrease for each account affected. Cash in bank--$25,000 increase (+) Maria Sanchez, Capital--$25,000 increase (+) Step 4: Make sure the accounting equation is in balance It remains in balance Assets Liability Owner’s Equity Cash in bank Maria Sanchez, Capital + $25,000

Business Transaction #2 The owner, Maria Sanchez, took two telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment. Step 1: Identify Office Equipment Maria Sanchez, Capital Step 2: Classify Office Equipment—Asset Maria Sanchez, Capital—Owner’s Equity

Business Transaction #2 The owner, Maria Sanchez, took two telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment. Step 3: +/- Office Equipment— $200 increase (+) Maria Sanchez, Capital—$200 increase (+) Step 4: Balanced? Yes

Business Transaction #2 Assets Liabilities Owner’s Equity Cash in Bank Office Equipment Maria Sanchez, Capital Prev. Balance 25,000 Trans. 2 400 Balance 25,400

Business Transaction #3 Roadrunner issued a $3,000 check to purchase a computer system. Step 1: Identify Cash Computer Equipment Step 2: Classify Cash—asset Computer Equipment Asset Step 3: +/- Cash—$3,000 decrease (-) Computer Equipment—$3,000 increase (+)

Business Transaction #3 Roadrunner issued a $3,000 check to purchase a computer system. Step 4: Balanced? Assets Liabilities Owner’s Equity Cash Computer Equip. Office Equip. Maria Sanchez, Capital Prev. Balance 25,000 400 25,400 Trans 3 - 3,000 + 3000 Balance 22,000 3,000

Business Transaction #4 Roadrunner bought a used truck on account from North Shore Auto for $12,000. Step 1: Identify Delivery equipment Accounts Payable Step 2: Classify Delivery Equipment—asset Accounts Payable--liability Step 3: +/- Delivery equipment—$12,000 increase (+) Accounts Payable—$12,000 increase (+)

Business Transaction #4 Roadrunner bought a used truck on account from North Shore Auto for $12,000. Balanced? Assets Liability Owner’s Equity Cash Computer Equip. Office Equip Delivery Equip Accounts Payable Prev. Balance 22,000 3,000 400 25,400 Trans. 4 12,000 Balance Assets = Liability + Owner’s Equity?

Transaction #5 Roadrunner sold one telephone to Green Company for $200 on account. Step 1: Identify Accounts Receivable Office Equipment Step 2: Classify Accounts Receivable—asset Office Equipment--asset Step 3: +/- Accounts Receivable—$200 increase (+) Office Equipment—$200 decrease (-)

Transaction #5 Roadrunner sold one telephone to Green Company for $200 on account. Step 4: Balanced? Assets Liab. O.E. Cash Acct. Rec Computer Equip Office Equip Delivery Equip. Acct. Pay. Maria Sanchez, Capital Prev. Bal. 22,000 3,000 400 12,000 25,400 Trans 5 + 200 - 200 Balance 200 Does Assets = Liability + Owner’s Equity?

Transaction 6: Roadrunner issued a check for $350 in partial payment of the amount awed to it’s creditor, North Shore Auto. Step 1: Identify Cash Accounts payable Step 2: Classify Cash—asset Accounts Payable-Liability Step 3: +/- Cash—$350 decrease (-) Accounts payable—$350 decrease (-)

Transaction #6 Roadrunner issued a check for $350 in partial payment of the amount awed to it’s creditor, North Shore Auto. Step 4: Balanced?

Assets Liability O.E. Cash in bank Acct. Rec. Computer equip. Office equip. Delivery equip. Acct. Pay. M. Sanchez, Capital Prev. Bal. 22,000 200 3,000 12,000 25,400 Trans 6 -350 Balance 21,650 11,650 Does Assets = liabilities + Owners Equity?

Transaction #7 Roadrunner received and deposited a check for $200 from Green Co. The check received is full payment for the telephone sold on account in Transaction #5. Step 1: Identify Accounts Receivable Cash Step 2: Classify Accounts Receivable—Asset Cash—Asset Step 3: +/- Accounts Receivable—$200 decrease (-) Cash– $200 increase (+)

Transaction #7 Step 4: Balanced? Assets Liab. O.E. Cash Acct. Rec. Comp. Equip Office Equip. Delivery Equip. Acct. Pay. M. Sanchez, Capital Prev. Bal. 21,650 200 3,000 12,000 11,650 25,400 Trans. 7 + 200 Balance 21,850 Does Assets = Liabilities + Owners Equity?