LESSON 2-1 Analyzing How Transactions Affect Owner’s Equity Accounts Chapter 2-3 4/24/2017 Analyzing How Transactions Affect Owner’s Equity Accounts

RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $295.00. 2-1

SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $350.00. 2-1

Analyzing Transactions 2-3 LESSON 2-1 4/24/2017 Analyzing Transactions 2-3 Received cash from sales, $400.00 Revenue makes Owner’s Equity increase. Assets = Liabilities + Owner’s Equity Cash Sales Debit Credit Debit Credit N. Bal Normal Bal. 400.00 400.00 2-1

Analyzing Transactions LESSON 2-1 4/24/2017 Analyzing Transactions Sold services on account to Kids Time, $500.00 Assets = Liabilities + Owner’s Equity A.R. Kids Time Sales Debit Credit Debit Credit N. Bal Normal Bal. 500.00 500.00 2-1

Analyzing Transactions --Use the four questions. LESSON 2-1 4/24/2017 Analyzing Transactions --Use the four questions. Received cash on account from Kids Time, $100.00 Assets = L + OE Cash A.R. Kids Time Debit Credit Debit Credit N. Bal N. Bal $100.00 $100.00 2-1

Analyzing Expense Transactions LESSON 2-1 4/24/2017 Analyzing Expense Transactions Expenses decrease owner’s equity. The decreases from expenses could be recorded directly in the Owner’s Equity account. But, the OE account would have too many entries. Using separate accounts for each helps to keep information straight. 2-1

Analyzing Expense Transactions LESSON 2-1 4/24/2017 Analyzing Expense Transactions The owner’s capital account has a normal credit balance. Decreases in the owner’s capital account are shown as debits. Therefore, an expense account has a normal debit balance. Expenses are always debited. 2-1

PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $300.00. 2-1

Analyzing Transactions LESSON 2-1 4/24/2017 Analyzing Transactions Paid cash for rent, $800.00. Expenses decrease Owner’s Equity--so an expense account’s normal balance side is the left side. Assets = Liabilities + Owner’s Equity Cash Rent Expense Debit Credit Debit Credit N. Bal Normal Bal. 800.00 800.00 2-1

Owner’s Taxable Income LESSON 2-1 4/24/2017 Owner’s Taxable Income A business owned by one person is called a proprietorship. The IRS does not require the proprietorship, itself, to pay taxes. However, the owner must include the net income of the proprietorship in his or her own taxable income. 2-1

LESSON 2-1 4/24/2017 Owner Withdrawals Employee salaries are considered an expense that reduces the net income of a company. Owner withdrawals are not considered an expense. Withdrawals do not affect the business’s income. 2-1

PAID CASH TO OWNER FOR PERSONAL USE page 42 August 12. Paid cash to owner for personal use, $125.00. 2-1

Analyzing Transactions LESSON 2-1 4/24/2017 Analyzing Transactions Paid cash to owner for personal use, 600.00. Withdrawals decrease Owner’s Equity--so a drawing account’s normal balance is the left side. Assets = Liab. + Owner’s Equity Cash Taylor Stalter, Drawing Debit Credit Debit Credit N. Bal Normal Bal. 600.00 600.00 Withdrawals could be recorded directly in the owner’s capital account. Using a separate Drawing account helps keep information separate. 2-1

Audit Your Understanding What two accounts are affected when a business receives cash from sales? Cash and Sales What two accounts are affected when services are sold on account. Sales and Accounts Receivable 2-1

Audit Your Understanding What two accounts are affected when a business pays cash to the owner for personal use? Owner’s drawing account and Cash Are revenue accounts increased on the debit side or credit side? Explain why. Credit side because sales increase owner’s equity 2-1

Audit Your Understanding Are expense accounts increased on the debit side or credit side. Explain why. Debit side because expenses decrease owner’s equity. 2-1

Work Together, 3-3 On My Website 2-1