Transactions That Affect Assets, Liabilities, & Owner’s Capital
Chapter 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts.
Transcript of Chapter 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts.
Chapter 2-3Chapter 2-3
Analyzing How Transactions Analyzing How Transactions
Affect Owner’s Equity AccountsAffect Owner’s Equity Accounts
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RECEIVED CASH FROM SALESRECEIVED CASH FROM SALESpage 38
August 12. Received cash from sales, $295.00.
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SOLD SERVICES ON ACCOUNTSOLD SERVICES ON ACCOUNTpage 39
August 12. Sold services on account to Oakdale School, $350.00.
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Analyzing Transactions 2-3Analyzing Transactions 2-3
• Received cash from sales, $400.00• Revenue makes Owner’s Equity increase.
Assets = Liabilities + Owner’s Equity
Cash SalesDebit Credit Debit CreditN. Bal Normal Bal.
400.00 400.00
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Analyzing TransactionsAnalyzing Transactions
• Sold services on account to Kids Time, $500.00
Assets = Liabilities + Owner’s Equity
A.R. Kids Time SalesDebit Credit Debit CreditN. Bal Normal Bal.
500.00 500.00
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Analyzing Transactions --Use the four Analyzing Transactions --Use the four questions.questions.
• Received cash on account from Kids Time, $100.00
Assets = L + OE
Cash A.R. Kids TimeDebit Credit Debit CreditN. Bal N. Bal
$100.00 $100.00
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Analyzing Expense TransactionsAnalyzing Expense Transactions
• Expenses decrease owner’s equity.• The decreases from expenses could be recorded directly
in the Owner’s Equity account.• But, the OE account would have too many entries.• Using separate accounts for each helps to keep
information straight.
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Analyzing Expense TransactionsAnalyzing Expense Transactions
• The owner’s capital account has a normal credit balance.• Decreases in the owner’s capital account are shown as
debits.
• Therefore, an expense account has a normal debitdebit balance.
• Expenses are always debited.
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PAID CASH FOR AN EXPENSEPAID CASH FOR AN EXPENSEpage 40
August 12. Paid cash for rent, $300.00.
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Analyzing TransactionsAnalyzing Transactions
• Paid cash for rent, $800.00.• Expenses decrease Owner’s Equity--so an expense account’s
normal balance side is the left side.
Assets = Liabilities + Owner’s Equity Cash Rent ExpenseDebit Credit Debit CreditN. Bal Normal Bal. 800.00 800.00
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Owner’s Taxable IncomeOwner’s Taxable Income
A business owned by one person is called a proprietorship.• The IRS does not require the proprietorship, itself, to pay
taxes.• However, the owner must include the net income of the
proprietorship in his or her own taxable income.
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Owner WithdrawalsOwner Withdrawals
• Employee salaries are considered an expense that reduces the net income of a company.
• Owner withdrawals are not considered an expense.• Withdrawals do not affect the business’s income.
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PAID CASH TO OWNER PAID CASH TO OWNER FOR PERSONAL USEFOR PERSONAL USE
page 42
August 12. Paid cash to owner for personal use, $125.00.
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Analyzing TransactionsAnalyzing Transactions
• Paid cash to owner for personal use, 600.00.• Withdrawals decrease Owner’s Equity--so a drawing account’s normal balance is
the left side.
Assets = Liab. + Owner’s Equity
Cash Taylor Stalter, DrawingDebit Credit Debit Credit
N. Bal Normal Bal. 600.00 600.00
• Withdrawals could be recorded directly in the owner’s capital account. Using a separate Drawing account helps keep information separate.
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Audit Your UnderstandingAudit Your Understanding
What two accounts are affected when a business receives cash from sales?
• Cash and Sales
What two accounts are affected when services are sold on account.
• Sales and Accounts Receivable
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Audit Your UnderstandingAudit Your Understanding
What two accounts are affected when a business pays cash to the owner for personal use?
• Owner’s drawing account and Cash
Are revenue accounts increased on the debit side or credit side? Explain why.
• Credit side because sales increase owner’s equity
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Audit Your UnderstandingAudit Your Understanding
Are expense accounts increased on the debit side or credit side. Explain why.
• Debit side because expenses decrease owner’s equity.
Work Together, 3-3Work Together, 3-3
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