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Transactions that affect owner’s Investment, cash & Credit

Transactions that affect owner’s Investment, cash & Credit. Chapter 3 Section 2. Business Transactions. Economic event that causes a change-either an increase or a decrease in assets, liabilities or Owner’s Equity Assets = Liabilities + Owner’s Equity

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Transactions that affect owner’s Investment, cash & Credit

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  1. Transactions that affect owner’s Investment, cash & Credit Chapter 3 Section 2

  2. Business Transactions • Economic event that causes a change-either an increase or a decrease in assets, liabilities or Owner’s Equity • Assets = Liabilities + Owner’s Equity • Examples: Business buys a computer with cash • Sell hotdogs for cash EACH TYPE OF TRANSACTION IS RECORDED IN A SPECIFIC ACCOUNT

  3. Accounts • The type of business will determine how many accounts will be used • Regardless of how many accounts are used—all will be classified as either: • Asset • Liability • Owner’s Equity

  4. Accounts Which accounts do you not recognize?

  5. Steps to Analyze Transactions • 1. Identify the accounts affected • 2. Classify the accounts affected • 3. Determine the amount of increase or decrease for each account affected. • 4. Make sure the accounting equation remains in balance

  6. Business Transaction #1 • Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. • Step 1: Identify the accounts affected • Cash in bank • Maria Sanchez, Capital • Step 2: Classify the accounts affected • Cash in bank—asset • Maria Sanchez, Capital—Owner’s Equity

  7. Business Transaction #1 Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. Step 3: Determine the amount of increase or decrease for each account affected. Cash in bank--$25,000 increase (+) Maria Sanchez, Capital--$25,000 increase (+) Step 4: Make sure the accounting equation is in balance It remains in balance

  8. Business Transaction #2 • The owner, Maria Sanchez, took two telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment. • Step 1: Identify • Office Equipment • Maria Sanchez, Capital • Step 2: Classify • Office Equipment—Asset • Maria Sanchez, Capital—Owner’s Equity

  9. Business Transaction #2 • The owner, Maria Sanchez, took two telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment. • Step 3: +/- • Office Equipment— $200 increase (+) • Maria Sanchez, Capital—$200 increase (+) • Step 4: Balanced? Yes

  10. Business Transaction #2

  11. Business Transaction #3 • Roadrunner issued a $3,000 check to purchase a computer system. • Step 1: Identify • Cash • Computer Equipment • Step 2: Classify • Cash—asset • Computer Equipment Asset • Step 3: +/- • Cash—$3,000 decrease (-) • Computer Equipment—$3,000 increase (+)

  12. Business Transaction #3 • Roadrunner issued a $3,000 check to purchase a computer system. • Step 4: Balanced?

  13. Business Transaction #4 • Roadrunner bought a used truck on account from North Shore Auto for $12,000. • Step 1: Identify • Delivery equipment • Accounts Payable • Step 2: Classify • Delivery Equipment—asset • Accounts Payable--liability • Step 3: +/- • Delivery equipment—$12,000 increase (+) • Accounts Payable—$12,000 increase (+)

  14. Business Transaction #4 • Roadrunner bought a used truck on account from North Shore Auto for $12,000. • Balanced? Assets = Liability + Owner’s Equity?

  15. Transaction #5 • Roadrunner sold one telephone to Green Company for $200 on account. • Step 1: Identify • Accounts Receivable • Office Equipment • Step 2: Classify • Accounts Receivable—asset • Office Equipment--asset • Step 3: +/- • Accounts Receivable—$200 increase (+) • Office Equipment—$200 decrease (-)

  16. Transaction #5 • Roadrunner sold one telephone to Green Company for $200 on account. • Step 4: Balanced? Does Assets = Liability + Owner’s Equity?

  17. Transaction 6: • Roadrunner issued a check for $350 in partial payment of the amount awed to it’s creditor, North Shore Auto. • Step 1: Identify • Cash • Accounts payable • Step 2: Classify • Cash—asset • Accounts Payable-Liability • Step 3: +/- • Cash—$350 decrease (-) • Accounts payable—$350 decrease (-)

  18. Transaction #6 • Roadrunner issued a check for $350 in partial payment of the amount awed to it’s creditor, North Shore Auto. • Step 4: Balanced?

  19. Does Assets = liabilities + Owners Equity?

  20. Transaction #7 • Roadrunner received and deposited a check for $200 from Green Co. The check received is full payment for the telephone sold on account in Transaction #5. • Step 1: Identify • Accounts Receivable • Cash • Step 2: Classify • Accounts Receivable—Asset • Cash—Asset • Step 3: +/- • Accounts Receivable—$200 decrease (-) • Cash– $200 increase (+)

  21. Transaction #7 • Step 4: Balanced? Does Assets = Liabilities + Owners Equity?

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