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Understanding the Effects of Transactions on Accounting Equation

This lesson explores how transactions impact the accounting equation, with a focus on revenue, expenses, and cash transactions. Learn key terms and concepts related to starting a service business and the changes that affect the accounting equation.

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Understanding the Effects of Transactions on Accounting Equation

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  1. LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Analyze transactions.

  2. Competency: Understanding the Accounting Cycle for a Service Business • Objectives: • 34 Describe the purpose of accounting and the role it plays in the global economy. • 35 Demonstrate the effects of transactions on the accounting equation. LESSON 1-3

  3. Chapter 1 Objectives • Define accounting terms related to starting a service business organized as a proprietorship and to changes that affect the accounting equation. • Identify accounting concepts and practices related to starting a service business organized as a proprietorship and to changes that affect the accounting equation. • Classify accounts as assets, liabilities, or owner’s equity and demonstrate their relationships in the accounting equation. • Analyze how transactions affect accounts in an accounting equation. LESSON 1-3

  4. Revenue – an increase in owner’s equity resulting from the operation of a business (transaction for the sale of goods or services). • Sale on account – a sale for which cash will be received at a later date (a charge sale). • Expense – a decrease in owner’s equity resulting from the operation of a business (paying for goods or services needed to operate a business). LESSON 1-3

  5. Types of Transactions • Received Cash from Sales • Selling a product and receiving cash (cash, check, debit/credit card). • Sold Services on Account • Selling a product with the customer promising to pay later. • Paid Cash for Rent • Owner paying cash (cash, check, debit/credit card) for renting business space. • Paid Cash for Telephone Bill • Owner paying cash (cash, check, debit/credit card) today for telephone service received. LESSON 1-3

  6. Types of Transactions • Received Cash on Account • Owner receiving cash (cash, check, debit/credit card) for a previously purchased item. • Paid Cash to Owner for Personal Use • Owner paying him/herself for personal use. LESSON 1-3

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

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

  9. Transaction 10 August 18. Received cash on account from Oakdale School, $200.00. OTHER CASH TRANSACTIONS page 16 Transaction 11 August 18. Paid cash to owner for personal use, $125.00. LESSON 1-3

  10. DEFINE TERMS REVIEW page 17 In your Chapter 1Terms Word Document, resave and drop a copy in my Inbox! • revenue • sale on account • expense • withdrawals LESSON 1-3

  11. Exit Ticket for Chapter 1-3 In a Word Document, SaveAS: Chapter1-3AYUYourName Drop a copy in my InBox today before you leave! • How is owner’s equity affected when cash is received from sales? • How is owner’s equity affected when services are sold on account? • How is owner’s equity affected when cash is paid for expenses? LESSON 1-3

  12. Chapter 1-3 Assignments Complete on Aplia • Work Together 1-3 • On Your Own 1-3 • Application Problem 1-3 LESSON 1-3

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