Ch 3 powerpoint

Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Glencoe Accounting

Key Terms

property

financial claim

credit

creditor

Section 3.1 Property andFinancial Claims

assets

equity

owner’s equity

liabilities


Property

Property andFinancial Claims

Section 3.1

The purpose of accounting is to provide:

Financial information about property

Financial claim to property

propertyAnything of value that a

person or business owns.

financial claimA legal right to

property.


Property


Section 3.1

A creditor lends you money.

You buy something on credit.

The financial claim is shared.

creditWhen you buy something and

agree to pay for it later.

creditorAny person or business to which

you owe money.


Property


Section 3.1


Financial Claims in Accounting


Section 3.1

AssetsCash

Office Equipment

Manufacturing Equipment

Buildings

Land

assetsProperty or items of value owned by a

business.




Section 3.1

Equity Owner’sEquity

equityThe accounting term for the

financial claim to assets.

owner’s equityThe owner’s claim to the

assets of a business.




Section 3.1

The Accounting Equation

liabilitiesAmounts owed to creditors; the

claims of creditors to the assets of a business.


Key Terms

business transaction

account

accounts receivable

accounts payable

investment

on account

Transaction That Affect Owner’s Investment, Cash, and CreditSection 3.2


Business Transactions

business transactionAn economic event that causes a

change—either an increase or decrease—in assets, liabilities, and/or

owner’s equity.

Section 3.2

Buying a sweater or putting cash in your savings account are examples of business transactions.

Transaction That Affect Owner’s Investment, Cash, and Credit



Section 3.2

A business records changes in subdivisions called

accounts.

Accounts receivable

Accounts payable

accountA subdivision under assets, liabilities, or

owner’s equity.




A business records changes in subdivisions called

accounts.

Accounts receivable

Accounts payable

accounts receivableThe total amount of money owed to a business—money to be received later

because of the sale of goods or services on credit.

accounts payableThe amount owed, or

payable, to the creditors of a

business.

Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit



Section 3.2

Steps for analyzing a business transaction

Identify the accounts affected.

Classify the accounts affected.

Determine the amount of increase or decrease for each account affected.

Make sure the accounting equation remains in balance.


1

2

3

4


Transactions and the Accounting Equation

Section 3.2

Analyze a cash investment transaction:

investmentMoney or other property paid out in order to produce a profit.

Business Transaction 1

Christa Vargas took $25,000 from personal savings and deposited that amount to open a business checking account in the name Zip Delivery Service.

See page 58




Section 3.2


Christa Vargas transferred two telephones valued at $200 each from her home to the business.

See page 59




Section 3.2

Analyze a cash purchase business transaction:


Zip issued a $3,000 check to purchase a computer system.

See page 59




Section 3.2

Analyze a purchase on account business transaction:

on accountWhen a business buys an item on credit.


Zip bought a used truck on account from Coast to Coast Auto for $12,000.

See page 60



Key Terms

revenue

expense

withdrawal

Transaction That Affect Revenue, Expense, and

Withdrawals by the OwnerSection 3.3


Revenue and Expense Transactions

Section 3.3

Examples of Revenue

Fees earned for services performed

Cash received from the sale of merchandise

revenueIncome earned from the sale of goods

or services.


Withdrawals by the Owner


Revenue and Expense Transactions

Section 3.3

Examples of Expenses

Rent

Utilities

Advertising

expenseThe cost of products or services used to operate a business.





Section 3.3

Withdrawals decrease assets and owner’s equity.

Investments increase assets and owner’s equity.

withdrawalWhen the owner takes cash or other assets from the business for personal use.




Question 1

O’Donnell’s Car Wash has the following assets and liabilities.Assets: Cash in Bank $9,500; Accounts Receivable $500; Computer Equipment $3,500; Car Wash Equipment $75,000; Building $450,000Liabilities: Alto’s Equipment Service $2,500; First National Bank (mortgage on building) $200,000

What is the owner’s equity for O’Donnell’s?

Step 1 Calculate total assets. $9,500 + $500 + $3,500 + $75,000 + $450,000 = $538,500

Step 2 Calculate total liabilities. $2,500 + $200,000 = $205,500

Step 3 Calculate owner’s equity. $538,500 - $202,500 = $336,000


Question 2

A business owner invests $12,000 cash in the business. How would you analyze this transaction?

1. Identify the accounts affected.a. Cash in Bank is affected.b. Owner’s Capital is affected.

2. Classify the accounts affected.a. Cash in Bank is an asset account.b. Owner’s Capital is an owner’s equity account.

3. Determine the amount of increase or decrease for each account affected.a. Cash in Bank is increased by $12,000.b. Owner’s Capital is increased by $12,000.

4. Make sure the accounting equation remains in balance. Assets = Liabilities + Owner’s Equity $12,000 = 0 + $12,000

Economy & Finance

Ch 3 powerpoint