How Transactions Change Owner’s Equity in an Accounting Equation

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Presentation transcript:

How Transactions Change Owner’s Equity in an Accounting Equation Lesson 1-3 4/25/2019 LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation

Increase in Owner’s Equity An increase in owner’s equity resulting from the operation of a business is revenue. The sale of goods or services increases owner’s equity. Transactions: Received cash from sales means that cash is received immediately upon the sale of merchandise or services and revenue is recorded. Sold services on account means that cash will be received at a later date for merchandise or services sold, and revenue is recorded immediately. LESSON 1-3

Decrease to Owner’s Equity A decrease in owner’s equity resulting from the operation of a business is an expense. The asset cash is decreased and the owner’s equity capital is also decreased. CASH CAPITAL (expense) LESSON 1-3

Decrease to Owner’s Equity Anytime cash is taken out of a business by the owner for their personal use it is called a withdrawal. Withdrawals decrease owner’s equity. CASH CAPITAL (withdrawal) LESSON 1-3

REVENUE TRANSACTIONS page 14 Transaction 6 August 12. Received cash from sales, $295.00. Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. LESSON 1-3

EXPENSE TRANSACTIONS page 15 Transaction 8 August 12. Paid cash for rent, $300.00. Transaction 9 August 12. Paid cash for telephone bill, $40.00. LESSON 1-3

OTHER CASH TRANSACTIONS page 16 Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. Transaction 11 August 12. Paid cash to owner for personal use, $125.00. LESSON 1-3

1-3 WT LESSON 1-3

LESSON 1-3