CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-2 How Business Activities Change the Accounting Equation

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TRANSACTION Business activity that changes the accounting equations Assets, liabilities or owner’s equity After each transaction, the accounting equation must remain in balance Assets – Liabilities = Owner’s Equity 2 LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning UNIT OF MEASUREMENT Accounting Concept Business transactions must stated in numbers that have common values In the United States, transactions are recorded in dollars 3 LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ACCOUNTING TERMS Account A record summarizing all the information pertaining to a single item in the accounting equation Account title The name given to an account Account balance The current amount in an account Capital The account used to summarize the owner’s equity in a business 4 LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ANALYZING TRANSACTIONS 1.Read the transaction 2.Figure out what two (or more) accounts are effected 3.Determine if the transaction increases or decreases the account 4.Determine the new account balance 5 LESSON 1-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 1-2 RECEIVING CASH Transaction 1 August 1. Received cash from owner as an investment, $5, page 10

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 1-2 PAYING CASH Transaction 2 August 3. Paid cash for supplies, $ Transaction 3 August 4. Paid cash for insurance, $1, page 11

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 1-2 TRANSACTIONS ON ACCOUNT Transaction 4 August 7. Bought supplies on account from Supply Depot, $ Transaction 5 August 11. Paid cash on account to Supply Depot, $ page 12