Accounting Bellwork 3 rd Hour: Assume that you are a business consultant. A business owner has explained that the business took in revenue of $78,000 last year and had expenses of $42,000. The owner withdrew $54,000 for personal use. The business started the year with owner’s equity of $20,000. The owner is having trouble paying business expenses. Analyze possible problems and what you should say to the business owner.

Accounting Bellwork Answer $78,000 Revenue -42,000 Expenses 36,000 Profit +20,000 beginning Owners Equity 56,000 Total Assets -54,000 Personal Withdrawal 2,000 Profit The owners could be withdrawing to much money for personal use.

Plans for Today Grade Homework Ch3-2 Lecture Ch3-3 Assign Homework Ch3-3

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. 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 The experience you gain by analyzing revenue, expense, and withdrawal transactions will help you analyze transactions in real-world situations. 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 Key Terms  revenue  expense  withdrawal Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

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.  They are both classified as a capital account that effect owners equity.  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.  They are both classified as a capital account that effect owners equity. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

For the following examples, use the accounts given to you yesterday for Road Runner Delivery Service. LIST OF ACCOUNTS Assets Cash in Bank Accounts Receivable Computer Equipment Office Equipment Delivery Equipment Assets Cash in Bank Accounts Receivable Computer Equipment Office Equipment Delivery Equipment =Liabilities Accounts Payable =Liabilities Accounts Payable +Owner’s Equity Maria Sanchez, Capital +Owner’s Equity Maria Sanchez, Capital

Revenue Transaction Business Transaction 8 ANALYSIS Identify 1.Roadrunner received cash, so Cash in Bank is affected. The payment received is revenue. Revenue increases owner’s equity, so Maria Sanchez, Capital is also affected. Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.) Business Transaction 8 (con’t.) Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. ANALYSIS Classify 2.Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s equity account. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.) Business Transaction 8 (con’t.) Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. ANALYSIS + / – 3.Cash in Bank is increased by $1,200. Maria Sanchez, Capital is also increased by $1,200. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.) Business Transaction 8 (con’t.) Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services. ANALYSIS Balance 4.The accounting equation remains in balance. Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $21,850 $0$3,000$200$12,000 $11,650$25,400 Trans. 8 +1,200 +1,200 Balance $23,050 +$0 + $3,000 + $200 + $12,000 = $11,650 +$26,600 Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $21,850 $0$3,000$200$12,000 $11,650$25,400 Trans. 8 +1,200 +1,200 Balance $23,050 +$0 + $3,000 + $200 + $12,000 = $11,650 +$26,600 Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction Business Transaction 9 ANALYSIS Identify 1.Roadrunner pays rent for use of building space. Rent is an expense. Expenses decrease owner’s equity, so the account Maria Sanchez, Capital is affected. The business is paying cash for the use of the building, so Cash in Bank is affected. Roadrunner wrote a check for $700 to pay the rent for the month. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.) Business Transaction 9 (con’t.) Roadrunner wrote a check for $700 to pay the rent for the month. ANALYSIS Classify 2. Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.) Business Transaction 9 (con’t.) Roadrunner wrote a check for $700 to pay the rent for the month. ANALYSIS + / – 3. Maria Sanchez, Capital is decreased by $700. Cash in Bank is decreased by $700. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.) Business Transaction 9 (con’t.) Roadrunner wrote a check for $700 to pay the rent for the month. ANALYSIS Balance 4.The accounting equation remains in balance. Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $23,050 $0$3,000$200$12,000 $11,650$26,600 Trans. 8 – 700 – 700 Balance $22,350 +$0 + $3,000 + $200 + $12,000 = $11,650 +$25,900 Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $23,050 $0$3,000$200$12,000 $11,650$26,600 Trans. 8 – 700 – 700 Balance $22,350 +$0 + $3,000 + $200 + $12,000 = $11,650 +$25,900 Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

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. 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. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.) Business Transaction 10 ANALYSIS Identify 1.A withdrawal decreases the owner’s claim to the assets of the business, so Maria Sanchez, Capital is affected. Cash is paid out, so the Cash in Bank account is affected. Maria Sanchez withdrew $500 from the business for her personal use. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.) Business Transaction 10 (con’t.) Maria Sanchez withdrew $500 from the business for her personal use. ANALYSIS Classify 2.Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.) Business Transaction 10 (con’t.) Maria Sanchez withdrew $500 from the business for her personal use. ANALYSIS + / – 3.Maria Sanchez, Capital is decreased by $500. Cash in Bank is decreased by $500. Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.) Business Transaction 10 (con’t.) Maria Sanchez withdrew $500 from the business for her personal use. ANALYSIS Balance 4.The accounting equation remains in balance. Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $22,350 $0$3,000$200$12,000 $11,650$25,900 Trans. 8 – 500 – 500 Balance $21,850 +$0 + $3,000 + $200 + $12,000 = $11,650 +$25,400 Assets=Liabilities+Owner’s Equity CashAccountsComputerOfficeDeliveryAccountsMaria Sanchez, in BankReceivableEquip.Equip.Equip.PayableCapital Prev. Bal. $22,350 $0$3,000$200$12,000 $11,650$25,900 Trans. 8 – 500 – 500 Balance $21,850 +$0 + $3,000 + $200 + $12,000 = $11,650 +$25,400 Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Demonstration Problem 5

25,000 25,

-10,00010,000 15,00025, ,000 2,400 15,00025,2002, ,0002,400

14,60025,2002, ,0002, ,60025,2002,40010,0002, ,80026,4002,40010,0002,000200

,80025,4002,40010,0002, ,80024,4002,40010,0002,000200

Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.) Thinking Critically 1&2 Analyzing Accounting Problem 3-3 Thinking Critically 1&2 Analyzing Accounting Problem 3-3 Assignment Check Your Understanding p60 Assignment Check Your Understanding p60