CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Analyze transactions.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Competency: Understanding the Accounting Cycle for a Service Business 2 LESSON 1-3 Objectives : 34 Describe the purpose of accounting and the role it plays in the global economy. 35 Demonstrate the effects of transactions on the accounting equation.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 1 Objectives Define accounting terms related to starting a service business organized as a proprietorship and to changes that affect the accounting equation. Identify accounting concepts and practices related to starting a service business organized as a proprietorship and to changes that affect the accounting equation. Classify accounts as assets, liabilities, or owner’s equity and demonstrate their relationships in the accounting equation. Analyze how transactions affect accounts in an accounting equation. 3 LESSON 1-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Revenue – an increase in owner’s equity resulting from the operation of a business (transaction for the sale of goods or services). Sale on account – a sale for which cash will be received at a later date (a charge sale). Expense – a decrease in owner’s equity resulting from the operation of a business (paying for goods or services needed to operate a business). 4 LESSON 1-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Types of Transactions Received Cash from Sales Selling a product and receiving cash (cash, check, debit/credit card). Sold Services on Account Selling a product with the customer promising to pay later. Paid Cash for Rent Owner paying cash (cash, check, debit/credit card) for renting business space. Paid Cash for Telephone Bill Owner paying cash (cash, check, debit/credit card) today for telephone service received. 5 LESSON 1-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Types of Transactions Received Cash on Account Owner receiving cash (cash, check, debit/credit card) for a previously purchased item. Paid Cash to Owner for Personal Use Owner paying him/herself for personal use. 6 LESSON 1-3

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 1-3 REVENUE TRANSACTIONS Transaction 6 August 12. Received cash from sales, $ Transaction 7 August 12. Sold services on account to Oakdale School, $ page 14

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 1-3 EXPENSE TRANSACTIONS Transaction 8 August 12. Paid cash for rent, $ Transaction 9 August 12. Paid cash for telephone bill, $ page 15

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 1-3 OTHER CASH TRANSACTIONS Transaction 10 August 18. Received cash on account from Oakdale School, $ Transaction 11 August 18. Paid cash to owner for personal use, $ page 16

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 1-3 DEFINE TERMS REVIEW revenue sale on account expense withdrawals page 17 In your Chapter 1Terms Word Document, resave and drop a copy in my Inbox!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Exit Ticket for Chapter How is owner’s equity affected when cash is received from sales? 2.How is owner’s equity affected when services are sold on account? 3.How is owner’s equity affected when cash is paid for expenses? 11 LESSON 1-3 In a Word Document, SaveAS: Chapter1-3AYUYourName Drop a copy in my InBox today before you leave!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 1-3 Assignments Complete on Aplia Work Together 1-3 On Your Own 1-3 Application Problem LESSON 1-3