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Transactions That affect Revenue, Expense, and Withdrawal by the owner

Transactions That affect Revenue, Expense, and Withdrawal by the owner. Chapter 3 section 3 . Revenue. Income earned from the sale of goods or services Examples: Fees earned for services performed Cash received from the sale of merchandise

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Transactions That affect Revenue, Expense, and Withdrawal by the owner

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  1. Transactions That affect Revenue, Expense, and Withdrawal by the owner Chapter 3 section 3

  2. Revenue • Income earned from the sale of goods or services • Examples: • Fees earned for services performed • Cash received from the sale of merchandise • Increases owner’s equity because it increases the assets of the business

  3. Revenue Vs. Investments • Revenue: • Income from the sale of a good or service • Must incur expenses to buy goods, materials, services, etc. • Increase owner’s equity • Investments: • Dollar amount contributed to the business by the owner • Increase owner’s equity • Example: • Maria Sanchez deposited $25,000 into Roadrunner

  4. Expense • Price paid for goods or services use to operate a business • The goal is to make more revenue that expenses • Fixed expenses vs. variable expenses • Decrease owner’s equity because they decrease the assets of the business OR increase liabilities • Paying with cash, check vs. paying with credit • Examples: • Rent • Utilities • Advertising

  5. Transaction #8 • Roadrunner received a check for $1,200 from a customer, Sims Corp., for delivery services. • Step 1: Identify which accounts are affected • Cash • Maria Sanchez, Capital • Step 2: Classify the accounts • Cash—asset • Maria Sanchez, Capital—Owner’s Equity • Step 3: +/- • Cash--$1,200 increase (+) • Maria Sanchez, Capital--$1,200 increase (+)

  6. Transaction #8 Total Assets = Total Liability + Owner’s Equity $ 38,250 11,650 26,600 BALANCED!!

  7. Business Transaction #9 • Roadrunner wrote a check for $700 to pay the rent for the month. • Step 1: Identify • Cash • Maria Sanchez, Capital • Step 2: Classify • Cash—asset • Maria Sanchez, Capital—owner’s equity • Step 3: +/- • Cash--$700 decrease (-) • Maria Sanchez, Capital--$700 decrease (-)

  8. Transaction #9 • Step 4: Balanced? Total Assets: Total Liability: Total Owner’s Equity 37,550 = 11,650 + 25,900

  9. Withdrawals by the Owner • Generally, if a business earns revenue, the owner will take cash or other assets from the business for personal use • When assets are decreased because of a withdrawal by the owner—the owner’s business financial claim is also decreased • Decreases the asset account and the owner’s equity account

  10. Expense Vs. Withdrawal • Expense: • Decrease owner’s equity • Price paid for goods and services used to operate a business • Example: gasoline for service trucks • Withdrawal: • Decrease owner’s equity • Cash or other assets taken from the business for the owner’s personal use

  11. Transaction 10 • Maria Sanchez withdrew $500 from the business for her personal use. • Step 1: Identify • Cash • Maria Sanchez, Capital • Step 2: Classify • Cash—Asset • Maria Sanchez, Capital—Owner’s Equity • Step 3: +/- • Cash-- $500—decrease (-) • Maria Sanchez, Capital—$500 decrease (-)

  12. Transaction 10 • Step 4: Balanced? Total Assets: Total Liabilities Total Owner’s Equity 37050 = 11,650 + 25,400

  13. Chapter Summary Does the accounting equation balance?

  14. Section Questions • 1. What effect does revenue have on a business? • Revenue increases owner’s equity because it increases business assets. • What effect do withdrawals have on a business? • A withdrawal decreases assets and owner’s equity.

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