Understanding Business Transactions: Accounting Equation Basics

1. Chapter 3Business Transactions and the Accounting Equation Objectives: • Describe the relationship between property and financial claims. • Explain the meaning of the term equities as it is used in accounting. • List and define each part of the accounting equation.

2. Objective cont . . . • Demonstrate the effects of transactions on the accounting equation. • Check the balance of the accounting equation after a business transaction has been analyzed and recorded. • Define the accounting terms introduced in this chapter.

3. HARPO PRODUCTIONS, Inc. First African-American woman to become a billionaire 1986 – She created Harpo Production, Inc. Talk show generates $104 million per year. “O” Talk show videos books movies

4. Chapter 3 Worksheets Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit

5. Problem 3-1 Balancing the Accounting Equation (T-page 53) $10,000 $26,000 $ 3,000 $ 26,000 $ 6,000 $13,000 $16,000 $ 8,000 $21,000 $ 20,000 $35,000 $ 4,500

6. Problem 3-2Determining the Effects of Transactionson the Accounting Equation (T- page 59)

7. Problem 3-2 Transaction #1: Jan Swift , owner, deposited $30,000 in the business checking account. +30,000 +30,000 +700 +700 #2: The owner transferred to the business a desk and chair valued at $700.

8. #3: WordServiceissued a check for $4,000 for the purchase of a computer. +30,000 +30,000 +700 +700 - 4,000 + 4,000 + 5,000 + 5,000 #4: The business bought office furniture on account for $5,000 from Eastern Furniture.

9. #5: The desk and chair previously transferred to the business by the owner were sold on account for $700. +700 -700 -2,000 -2,000 24,000 700 4,000 5,000 3,000 30,700 #6: WordService wrote a check for $2,000 in partial payment of the amount owed to Eastern Furniture Company.

10. ASSETS = LIABILITIES + OWNER’S EQUITY 33,700 = 33,700

11. Section 3Transactions That Affect Revenue, Expenses, and Withdrawals by the Owner Financial Claims Property = Equities Assets = Liabilities Owner’s Equity Cash Decreases Assets Decreases Owner’s Equity Expenses Revenue Increases Assets Increase Owner’s Equity

12. Problem 3-3Determining the Effects of Transactionson the Accounting Equation (T- page 63)

13. Problem 3-3Transaction #1: Paid $50 for advertising in the local newspaper. -50 -50 +1,000 +1,000 -600 -600 -800 -800 +200 -200 23,750 500 3,000 30,250 4,000 5,000

14. Problem 3-4 Classifying Accounts

15. Problem 3-5 Completing the Accounting Equation 1,600 10,850 1,600 9,250

16. Problem 3-6 Classifying Accounts Within the Accounting Equation 5,000 Cash in Bank Accounts Receivable 2,000 Camping Equipment 12,000 3,000 Office Equipment 22,000 Accounts Payable 7,000 Ronald Hicks, Capital 15,000 22,000

17. Problem 3-8 Determining the Effects of Transactions on the Accounting Equation +700 +700 -2,000 -2,000 +500 +500

18. Key Terms credit Owner’s equity Business transaction Financial claims account creditors On account property assets Accounts payable liabilities Accounting equation equities Accounts receivable investment