1. Changes That Affect Owner’s Equity
Chapter 2

2. Chapter 2
Chapter 1 dealt with transactions involved in starting a business.
Chapter 2 presents transactions that commonly occur during the daily operations of a business.

3. Terms
Revenue – an increase in owner’s equity resulting from the operation of a business.
Sale on account (charge sale) – a sale for which cash will be received at a later date.
Expense – A decrease in owner’s equity resulting from the operation of a business.
Withdrawals – assets taken out of a business for the owner’s personal use.

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

5. Accounting Concept-Realization of Revenue
Revenue is recorded at the time the goods or services are sold

6. PAID CASH FOR EXPENSES
Transaction 8 August 12. Paid cash for rent, $
–45 (expense)
Transaction 9 August 12. Paid cash for telephone bill, $45.00.
Lesson 2-1, page 27

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

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

9. Complete 2-1 Work
Together
and On Your Own

10. 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

11. Complete 2-2 Work Together and On your Own