TRANSACTIONS THAT AFFECT OWNER’S INVESTMENT, CASH AND CREDIT

Business Transactions A business transaction is an economic event that causes a change – either an increase or a decrease – in assets, liabilities or owners equity An account is a subdivision under assets, liabilities, or owners equity. Shows the balance for a specific item and is a record of the increase or decrease for that item Businesses set up their individual accounts and can range from a few to hundreds.

Accounts Accounts receivable is the total amount of money owed to a business, money to be received later because of the sale of goods and services on credit and is listed as an asset. Accounts payable is the amount owed or payable to creditors of a business and is listed as a liability.

Transactions and the Accounting Equation Once a transaction occurs, an accounting clerk analyzes the transaction to see how it affects each part of the accounting equation.

Analyzing the Business Transaction 1. Identify the account affected 2. Classify the account affected 3. Determine the amount of increase or decrease for each account affected 4. Determine the amount of increase or decrease for each account affected

Transactions Types Most businesses have the following transactions Investments by the owner (Investment is money or other property paid out to produce a profit). Cash transactions Credit transactions Revenue and expense transactions Withdrawals by the owner

Transactions Now review the transactions on pages 58-61