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Chapter 1 – Section 3

Chapter 1 – Section 3. How Transactions Change Owner’s Equity in an Accounting Equation. Transaction for the sale of goods or services. Results in owner’s equity. Increase in OE from the business transactions is called Revenue. Ex: cash from sales, sold services. Revenue Transactions.

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Chapter 1 – Section 3

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  1. Chapter 1 – Section 3 How Transactions Change Owner’s Equity in an Accounting Equation

  2. Transaction for the sale of goods or services. • Results in owner’s equity. • Increase in OE from the business transactions is called Revenue. • Ex: cash from sales, sold services Revenue Transactions

  3. Assets = Liabilities + O/E Cash + A/R + Supplies + P/I = A/P KP, Capt. $3,225 $0 $775 $1,200 $200 $5,000 +$295 +295 $3,520 $0 $775 $1,200 $200 $5,295 Transaction #6

  4. What happens when you sell something but don’t receive the money now? • Sale on account (aka charge sale) • On what date should the transaction being recorded? • When it occurred or when the money is received? • What is Realization of Revenue? Revenue Trans. Cont.

  5. Assets = Liabilities + O/E Cash + A/R + Supplies + P/I = A/P KP, Capt. $3,225 $0 $775 $1,200 $200 $5,000 +$295 +$295 +$350 +$350 $3,520 $350 $775 $1,200 $200 $5,645 Transaction #7

  6. Transaction to pay for goods or services. • Results in owner’s equity. • Decrease in O/E from business transactions is an Expense. • Ex: Rent, phone bill, repairs, advertising, salary, etc… Expense Transactions

  7. Assets = Liabilities + O/E Cash + A/R + Supplies + P/I = A/P KP, Capt. $3520 $350 $775 $1200 $200 $5645 -$300 -$300 -$40 -$40 $3180 $350 $775 $1200 $200 $5305 Transactions 8 & 9

  8. Business receives money for a prior purchase. • Two accts. affected = A/R and Cash • Owner takes assets for personal use. • Called a Withdrawal • Affects = An asset and Capital Other Cash Transactions

  9. Assets = Liabilities + O/E Cash + A/R + Supplies + P/I = A/P KP, Capt. $3180 $350 $775 $1200 $200 $5305 +$200 -$200 -$125 -$125 $3255 $150 $775 $1200 $200 $5180 Transactions 10 & 11

  10. Beginning Capital $5,000.00 Revenue #6 295.00 Revenue #7 350.00 Expense #8 300.00 Expense #9 40.00 Withdrawal #11 125.00 Ending Capital $5,180.00 Total Change = $180.00 Changes in Owner’s Equity

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