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

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

3. 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

4. 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?

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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 (+)

12. 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

13. 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 (+)

14. 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?

15. 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 (-)

16. 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?

17. 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 (-)

18. 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?

19. 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?

20. 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 (+)

21. 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?