BUSINESS TRANSACTIONS AND THE ACCOUNTING EQUATION Chapter 3

Property and Financial Claims  Property: Anything of value that a person or business owns  Financial Claim: Legal right to an item  Property = Financial Claim  Bike Example

Property and Financial Claims  Credit: Buy now pay later  Creditor: Business or person selling to you on credit  Property = Financial Claims  Financial Claims = Creditor’s FC + Owner’s FC  Property = Creditor’s FC + Owner’s FC  Car Example

Property and Financial Claims  Assets: Property or items of value owned by a business  Examples:  Equities: Accounting term for financial claims  Creditor’s Financial Claims are liabilities  Owner’s Financial Claims are Owner’s Equity  Property = Creditor’s FC + Owner’s FC Assets = Liabilities + Owner’s Equity

Transactions That Affect Owner’s Investment, Cash and Credit  Business Transaction: economic event that causes a change in A, L, or OE  Account: subdivision of A, L, or OE  Examples: (pg. 54)  Accounts Receivable: Total amount of money owed to a business  Accounts Payable: Total amount owed to the creditors of a business

Transactions That Affect Owner’s Investment, Cash and Credit  Investment: Money, or other property, paid out in order to produce profit  On Account: When a business buys an item on credit

Transactions That Affect Owner’s Investment, Cash and Credit  Revenue – Income earned from sales  Expense – Cost of products or services used to operate a business.  Examples  Withdrawal – When the owner takes cash out of the business for personal use.  Divests, opposite of invests