Property The purpose of accounting is to provide: Property and Financial Claims Section 3.1 Financial information about property The purpose of accounting is to provide: Financial claim to property property Anything of value that a person or business owns. financial claim A legal right to property. Glencoe Accounting

Accounting Equation: Assets = Liabilities + Owners Equity Why is it important? To make sure everything is accounted for and the business knows their money and property balance out. Glencoe Accounting

= Property Property is anything of value that is owned Property and Financial Claims Section 3.1 Property is anything of value that is owned Or the company has a financial claim to. = Financial Claims Property Property and Financial claims are measured in: MONEY Glencoe Accounting

The financial claim is shared. Property Property and Financial Claims Section 3.1 A creditor lends you money. The financial claim is shared. You buy something on credit. credit When you buy something and agree to pay for it later. creditor Any person or business to which you owe money. Glencoe Accounting

Property Property and Financial Claims Section 3.1 Glencoe Accounting

Financial Claims in Accounting Property and Financial Claims Section 3.1 Land assets Property or items of value owned by a business. Buildings Cash Assets Manufacturing Equipment Office Equipment Glencoe Accounting

Financial Claims in Accounting Property and Financial Claims Section 3.1 Owner’s Equity Equity equity The accounting term for the financial claim to assets. owner’s equity The owner’s claim to the assets of a business. Glencoe Accounting

Financial Claims in Accounting Property and Financial Claims Section 3.1 The Accounting Equation liabilities Amounts owed to creditors; the claims of creditors to the assets of a business. Glencoe Accounting

The accounting equation: Assets = Liabilities + Owner’s Equity Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Buying a sweater or putting cash in your savings account are examples of business transactions. business transaction An economic event that causes a change—either an increase or decrease—in assets, liabilities, and/or owner’s equity. Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Accounts receivable A business records changes in subdivisions called accounts. Accounts payable account A subdivision under classification of assets, liabilities, or owner’s equity. Glencoe Accounting

3 classifications of accounts are the same as the accounting equation accounts: Assets Liabilities Owner’s Equity Glencoe Accounting

Owner’s Equity Account: 5 Asset Accounts: Cash in Bank Accounts Receivable Delivery Equipment Store Equipment Buildings Liability Account: Accounts Payable Owner’s Equity Account: OWNER, Capital Glencoe Accounting

Business Transactions Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Steps for analyzing a business transaction Make sure the accounting equation remains in balance. 4 Determine the amount of increase or decrease for each account affected. 3 2 Classify the accounts affected. 1 Identify the accounts affected. Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a cash investment transaction: 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 investment Money or other property paid out in order to produce a profit. Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Business Transaction 2 Christa Vargas transferred two telephones valued at $200 each from her home to the business. See page 59 Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a cash purchase business transaction: Business Transaction 3 Zip issued a $3,000 check to purchase a computer system. See page 59 Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a purchase on account business transaction: Business Transaction 4 Zip bought a used truck on account from Coast to Coast Auto for $12,000. See page 60 on account When a business buys an item on credit. Glencoe Accounting

Revenue and Expense Transactions Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3 Examples of Revenue Fees earned for services performed Cash received from the sale of merchandise revenue Income earned from the sale of goods or services. Glencoe Accounting

Revenue and Expense Transactions Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3 Examples of Expenses Rent Utilities Advertising expense The cost of products or services used to operate a business. Glencoe Accounting

Withdrawals by the Owner Transaction That Affect Revenue, Expense, and Withdrawals by the Owner Section 3.3 Withdrawals decrease assets and owner’s equity. Investments increase assets and owner’s equity. withdrawal When the owner takes cash or other assets from the business for personal use. Glencoe Accounting

Question 2 A business owner invests $12,000 cash in the business. How would you analyze this transaction? Identify the accounts affected. a. Cash in Bank is affected. b. Owner’s Capital is affected. Classify the accounts affected. a. Cash in Bank is an asset account. b. Owner’s Capital is an owner’s equity account. 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. Make sure the accounting equation remains in balance. Assets = Liabilities + Owner’s Equity $12,000 = 0 + $12,000 Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a revenue transaction: Business Transaction 5 Christa Vargas received a check for $1,200 from a customer, Sims Corporation, for delivery services. Trans. 5 Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze an expense transaction: Business Transaction 6 Zip Delivery service wrote a check for $700 to pay the rent for the month. Trans. 6 Glencoe Accounting

Transactions and the Accounting Equation Section 3.2 Transaction That Affect Owner’s Investment, Cash, and Credit Analyze a withdrawal transaction: Business Transaction 7 Christa Vargas withdrew $500 from the business for her personal use. Trans. 7 Glencoe Accounting