Transactions That affect Revenue, Expense, and Withdrawal by the owner Chapter 3 section 3

Revenue Income earned from the sale of goods or services Examples: Fees earned for services performed Cash received from the sale of merchandise Increases owner’s equity because it increases the assets of the business

Revenue Vs. Investments Income from the sale of a good or service Must incur expenses to buy goods, materials, services, etc. Increase owner’s equity Investments: Dollar amount contributed to the business by the owner Example: Maria Sanchez deposited $25,000 into Roadrunner

Expense Price paid for goods or services use to operate a business The goal is to make more revenue that expenses Fixed expenses vs. variable expenses Decrease owner’s equity because they decrease the assets of the business OR increase liabilities Paying with cash, check vs. paying with credit Examples: Rent Utilities Advertising

Transaction #8 Roadrunner received a check for $1,200 from a customer, Sims Corp., for delivery services. Step 1: Identify which accounts are affected Cash Maria Sanchez, Capital Step 2: Classify the accounts Cash—asset Maria Sanchez, Capital—Owner’s Equity Step 3: +/- Cash--$1,200 increase (+) Maria Sanchez, Capital--$1,200 increase (+)

Transaction #8 Assets Liability Owner’s Equity Cash Acct. Rec. Computer Equip Office Equip Delivery Equip Acct Pay M. Sanchez, Capital Prev. Bal 21,850 3,000 200 12,000 11,650 25,400 Trans 8 + 1,200 +1,200 Balance 23,050 26,600 Total Assets = Total Liability + Owner’s Equity $ 38,250 11,650 26,600 BALANCED!!

Business Transaction #9 Roadrunner wrote a check for $700 to pay the rent for the month. Step 1: Identify Cash Maria Sanchez, Capital Step 2: Classify Cash—asset Maria Sanchez, Capital—owner’s equity Step 3: +/- Cash--$700 decrease (-) Maria Sanchez, Capital--$700 decrease (-)

Transaction #9 Step 4: Balanced? Assets Liability Owner’s Equity Cash Acct. Rec. Computer Equip. Office Equip. Delivery Equip Acct. Pay M. Sanchez, Capital Prev. Bal. 23,050 3,000 200 12,000 11,650 26,600 Trans 9 700 - 700 Balance 22,350 25,900 Total Assets: Total Liability: Total Owner’s Equity 37,550 = 11,650 + 25,900

Withdrawals by the Owner Generally, if a business earns revenue, the owner will take cash or other assets from the business for personal use When assets are decreased because of a withdrawal by the owner—the owner’s business financial claim is also decreased Decreases the asset account and the owner’s equity account

Expense Vs. Withdrawal Expense: Withdrawal: Decrease owner’s equity Price paid for goods and services used to operate a business Example: gasoline for service trucks Withdrawal: Cash or other assets taken from the business for the owner’s personal use

Transaction 10 Maria Sanchez withdrew $500 from the business for her personal use. Step 1: Identify Cash Maria Sanchez, Capital Step 2: Classify Cash—Asset Maria Sanchez, Capital—Owner’s Equity Step 3: +/- Cash-- $500—decrease (-) Maria Sanchez, Capital—$500 decrease (-)

Transaction 10 Step 4: Balanced? Assets Liability Owner’s Equity Cash Acct. Rec Computer Equip Office Equip Delivery Equip Acct. Pay M. Sanchez, Capital Prev. Bal 22,350 3,000 200 12,000 11,650 25,900 Trans 10 500 - 500 Balance 21,850 25,400 Total Assets: Total Liabilities Total Owner’s Equity 37050 = 11,650 + 25,400

Chapter Summary Cash Acct. Rec Comp Equip Office Equip Delivery Equip Acct. Pay O.E. Prev. Bal Tran 1 + 25,000 25,000 Tran 2 + 400 Tran 3 -3,000 Tran 4 + 12,000 Tran 5 +200 - 200 Tran 6 350 - 350 Tran 7 + 200 Tran 8 + 1,200 Tran 9 700 - 700 Tran 10 - 500 Balance 21,850 + 0 + 3,000 + 200 + 12,000 = 11,650 + 25,400 Does the accounting equation balance?

Section Questions 1. What effect does revenue have on a business? Revenue increases owner’s equity because it increases business assets. What effect do withdrawals have on a business? A withdrawal decreases assets and owner’s equity.