Business Transactions and the Accounting Equation Chapter 3 $ Business Transactions and the Accounting Equation $ Making Accounting Relevant Every business has assets, liabilities (debts), and owner’s equity. Think about a business in your community. $ $ What possible assets does this business possess?

$ $ $ $ Section 1 Property and Financial Claims What You’ll Learn Chapter 3 $ Section 1 Property and Financial Claims $ What You’ll Learn The relationship between property and financial claims. The meaning of equity as it is used in accounting. The parts of the accounting equation. The definition of each part of the accounting equation. $ $

$ $ $ $ Why It’s Important Key Terms Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Why It’s Important The accounting equation is the basis for keeping all accounting records in balance. $ Key Terms property property rights financial claims credit creditor assets $ investments equity owner’s equity liabilities accounting equation $

$ $ $ $ Property: Ownership and Control Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Property: Ownership and Control The right to own property is basic to the free enterprise system Property is anything of value that is owned or controlled. Owning an item gives you the legal right or financial claim to that item Control is the right ONLY to the use of the item $ $ $

$ $ $ $ Property: Ownership and Control Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Property: Ownership and Control Property is anything of value that is owned or controlled. $ $ Property Financial Right Claim Own Yes Yes Control (like rent) Yes No $

Property: Ownership and Control Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Property: Ownership and Control In accounting, property and financial claims are measured in dollar amounts $ amounts measure both cost of property & the property rights (financial claims) $ $ Property Financial Claims (Cost) = (Financial Investments) Bike = Your Claim to the Bike $600 = $600 $

Property: Ownership and Control (cont'd.) Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Property: Ownership and Control (cont'd.) When you buy property and agree to pay for it later, you are buying on credit. $ $ Property = Financial Claims Bike Creditor’s Owner’s Lock = Financial Claim + Financial Claim $100 = $40 + $60 $

$ $ $ $ Financial Claims in Accounting Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 Financial Claims in Accounting  Assets: Property or items of value owned by a business (land, buildings, mfg equipment) Equity is the claims of both creditors and owners to business assets  Owner’s Equity: The owner’s claims to the assets of the business  Liabilities: A creditor’s claims to the assets of the business (debts of a business) $ $ $ $

$ $ $ $ The Accounting Equation: SEE PROBLEM 3-1 (pg 49) Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ The Accounting Equation: SEE PROBLEM 3-1 (pg 49) $ Creditor’s Owner’s Financial Claim Financial Claim Property = + $ $ Assets = Liabilities + Owner’s Equity Basic accounting equation is: a = b + c To find b or c, re-write equation as b = a – c, or c = a - b

$ $ $ $ Check Your Understanding Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Check Your Understanding $ What is meant by having a financial claim to property? $ $