Business Transactions and the Accounting Equation Chapter 3 $ Business Transactions and the Accounting Equation $ $ $ Chapter 3 Notes

$ $ $ $ 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 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 (cont'd.) Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Property: Ownership and Control (cont'd.) In accounting, property and financial claims are measured in dollar amounts. $ $ 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  Owner’s Equity: The owner’s claims to the assets of the business  Liabilities: A creditor’s claims to the assets of the business $ $ $

$ $ $ $ The Accounting Equation Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ The Accounting Equation $ Creditor’s Owner’s Financial Claim Financial Claim Property = + $ $ Assets = Liabilities + Owner’s Equity

$ $ $ $ Important Definitions Chapter 3 Section 1 Property and Financial Claims (cont'd.) Chapter 3 $ Important Definitions  Business Transaction: An economic event that causes a change in the accounting equation.  Accounts Receivable: the total amount of money to be received later because of a sale of goods or services on credit. (selling on account)  Accounts Payable: the amount of money owed, or payable, to the creditors of a business. (buying on account) $ $ $

Chapter 3 Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner $ $ What You’ll Learn How revenue transactions affect the accounting equation. How expense transactions affect the accounting equation. How withdrawals by the owner affect the accounting equation. $ $

$ $ $ $ Why It’s Important Key Terms Chapter 3 Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.) Chapter 3 $ Why It’s Important The experience you gain by analyzing revenue, expense, and withdrawal transactions will help you analyze transactions in real-world situations. $ $ Key Terms revenue expense withdrawal $

$ $ $ $ Revenue and Expense Transactions Chapter 3 Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.) Chapter 3 $ Revenue and Expense Transactions $ Income earned from the sale of goods or services is revenue. An expense is the price paid for goods or services used to operate a business. $ $

$ $ $ $ Withdrawals by the Owner Chapter 3 Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.) Chapter 3 $ Withdrawals by the Owner If a business earns revenue, the owner will take cash or other assets from the business for personal use. This transaction is called a withdrawal. $ $ $