Changes That Affect Owner’s Equity Chapter 2

Chapter 2 Chapter 1 dealt with transactions involved in starting a business. Chapter 2 presents transactions that commonly occur during the daily operations of a business.

Terms Revenue – an increase in owner’s equity resulting from the operation of a business. Sale on account (charge sale) – a sale for which cash will be received at a later date. Expense – A decrease in owner’s equity resulting from the operation of a business. Withdrawals – assets taken out of a business for the owner’s personal use.

REVENUE TRANSACTIONS Transaction 6 August 12. Received cash from sales, $325.00. Transaction 7 August 12. Sold services on account to Kids Time, $200.00. Lesson 2-1, page 26

Accounting Concept-Realization of Revenue Revenue is recorded at the time the goods or services are sold

PAID CASH FOR EXPENSES Transaction 8 August 12. Paid cash for rent, $250.00. –45 (expense) Transaction 9 August 12. Paid cash for telephone bill, $45.00. Lesson 2-1, page 27

OTHER TRANSACTIONS Transaction 10 August 12. Received cash on account from Kids Time, $100.00. –100 (withdrawal) Transaction 11 August 12. Paid cash to owner for personal use, $100.00. Lesson 2-1, page 28

SUMMARY OF CHANGES IN OWNER’S EQUITY Transaction Change in Number Kind of Transaction Owner’s Equity 6 Revenue (cash) +325.00 7 Revenue (on account) +200.00 8 Expense (rent) –250.00 9 Expense (telephone) –45.00 11 Withdrawal –100.00 Net change in owner’s equity +130.00 Lesson 2-1, page 28

Complete 2-1 Work Together and On Your Own

BALANCE SHEET PREPARATION 1. Write the heading. 1 2. Prepare the assets section. 2 3 3. Prepare the liabilities section. 4 6 4. Prepare the owner’s equity section. 5 7 8 5. Add and compare the totals. 6. Rule single lines. 7. Write the totals. 8. Rule double lines. Lesson 2-2, page 30

Complete 2-2 Work Together and On your Own