1. Property and Financial Claims, The Accounting Equation and
Chapter 3 $
Property and Financial Claims,
The Accounting Equation
and
Business Transactions $ $ $

2. $ $ $ $ Property: Ownership and Control Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control
Property is anything of value that is owned or controlled. $ $
Property Financial
Right Claim
Own Yes Yes
Control (like rent) Yes No
Owning property is a right that is fundamental to our private enterprise system.
The value of property is measured in $s.
Accounting provides financial information about property and property rights $

3. Property: Ownership and Control (cont'd.)
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control (cont'd.)
In accounting, property and financial claims are measured in dollar amounts. $ $
Property Financial Claims
(Cost) = (Financial Investments)
Bike = Your Claim to the Bike
$600 = $600
Example shows property that was bought with cash – you acquire all of the financial claims to the proprety.
But – what happens to the financial claim when you don’t pay for the property right away??
What happens when you buy property on credit? $

4. Property: Ownership and Control
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control
When you buy property and agree to pay for it later, you are buying on credit.
The business you buy the property from is a creditor. $ $
Property = Financial Claims
Bike Creditor’s Owner’s
Rack = Financial Claim + Financial Claim
$2,000 = $800 + $1,200
The person selling the property on credit is a creditor.
Other examples: Use formula to solve: Property = Cr Fin Claims + Owner’s Fin Claim
What is the amount of a creditor’s claim to a baseball glove if the glove cost $32 and the amt still owed is $12?
What is the amount of a creditor’s claim to a radio if the radio cost $75 and the owner has paid $35 of the total?
What was the cost of an automobile if the owner has a $3,000 claim and a creditor has an $11,000 claim?
NOTE: As payments are made, the creditors financial claims decrease and the owners claims increase!!!! $

5. $ $ $ $ Financial Claims in Accounting Chapter 3 Assets: Liabilities:
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Financial Claims in Accounting
Assets:
Property or items of value owned by a business
Liabilities:
A creditor’s claims to the assets of the business
Owner’s Equity:
The owner’s claims to the assets of the business $ $
In accounting terms, property equals assets, and claims to these assets equal equity (or property rights).
Equity includes the claim of creditors (liabilities) plus the claims of the owner (owner’s equity).
Assets include cash
Liabilities – the debts of a business
Owner’s equity claims – to property and cash
There are financial claims to a business’s assets (property) by both the owner and creditors. $
These financial claims to the assets together are called Equity

6. $ $ $ $ Financial Claims in Accounting Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Financial Claims in Accounting
The EQUITY of a business includes the claims of the creditors (liabilities) and the claims of the owner (owner’s equity). $ $
Equity includes the claim of creditors (liabilities) plus the claims of the owner (owner’s equity). $

7. $ $ $ $ The Accounting Equation Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
The Accounting Equation $
Creditor’s Owner’s
Financial Claim Financial Claim
Property = + $
Plugging in the new terms at the bottom results in the accounting equation.
Creditors claims are listed first because creditors have first claim to assets in case business shuts down. $
Assets = Liabilities + Owner’s Equity

8. $ $ $ $ Business Transactions Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Business Transactions
An economic event that causes a change — either an increase or a decrease — in assets, liabilities, or owner’s equity.
Separate accounts are maintained for each item of value the business has, for the creditor’s claims and the owner’s claims. Each account is classified as:
Assets
Liabilities
Owner’s Equity $ $
BUSINESS TRANSACTIONS:
Involve the purchase , sale or exchange of goods and services.
Change the financial position of the business
Must affect at least 2 accounts
Accounting equation must remain in balance.
Example: Business purchases a desk and pays cash for it, the amount of cash in the business decreases and the equipment in the business increases. ILLUSTRATE ON THE BOARD.
Business transactions are sometimes repetitive and fall into specific types. $

9. $ $ $ $ Business Transactions Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Business Transactions
Each transaction affects at least two accounts.
The accounting equation must remain in balance after a transaction.
An account shows the balance for a specific item and a record of the increases and decreases caused by business transactions. $ $
BUSINESS TRANSACTIONS:
Involve the purchase , sale or exchange of goods and services.
Change the financial position of the business
Must affect at least 2 accounts
Accounting equation must remain in balance.
Example: Business purchases a desk and pays cash for it, the amount of cash in the business decreases and the equipment in the business increases. ILLUSTRATE ON THE BOARD.
Business transactions are sometimes repetitive and fall into specific types. $

10. $ $ $ $ Business Transactions (cont'd.) Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Business Transactions (cont'd.) $
Assets = Liabilities + Owner’s Equity
Accounts Maria Sanchez,
Cash in Bank Payable Capital
Accounts Receivable
Computer Equipment
Office Equipment
Delivery Equipment $
Names of accounts a business has varies from business to business, from a few to a hundred.
These accounts are assigned numbers.
Accounts represent things in a business: money invested, office furniture, money owed to a creditor, etc. Each business sets up its accounts according to its needs; each account must be classified.
Accounts Receivables – the amount of money to be received in the future for goods or services sold on credit. It is an asset, because it represents something owned; a business’s claim to the assets of another person or business. It will become cash.
Accounts Payable – the amount of money owed or payable to the creditors of a business – the debts of the business.
Owner’s Equity – account name includes the owner’s name followed by Capital – the amount in this account represents the owner’s financial claims to the assets in the business.
STOP AND MAKE A LIST OF ACCOUNTS FOR THE GRAFFITI WALL SELECTED BUSINESSES. $
Capital Account – tracks the monetary value of investments by the owner (cash and noncash investments)

11. $ $ $ $ Effects of Business Transactions on the Accounting Equation
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Effects of Business Transactions on the Accounting Equation
Analyzing business transactions: $
Business Transaction $
ANALYSIS Identify
Classify
+ / -
Balance
1. Identify the accounts affected.
2. Classify the accounts affected.
3. Determine the amount of increase or decrease for each account.
4. Make sure the accounting equation remains in balance. $

12. $ $ $ $ Types of Transactions Chapter 3 Owner Investment Transactions
Cash investment
Asset investment
Cash or Credit Transactions
Purchase assets
Sell assets owned by the business $ $
What affect does owner investment transactions have on a business?
What affect does cash/credit transactions have on a business? $

13. $ $ $ $ Types of Transactions Chapter 3 Revenue Transactions
Income earned from the sale of goods or services.
Expense Transactions
The price paid for goods or services used to operate a business.
Withdrawal Transactions
When the owner takes cash or other assets from the business for personal use. $ $
What affect does revenue have on a business?
What affect does expenses have on a business?
What affect does withdrawals have on a business? $