2. Chapter 3 Business Transactions and the Accounting Equation Objectives: Describe the relationship between property and financial claims. Explain the meaning of the term equities as it is used in accounting. List and define each part of the accounting equation.

3. Objective cont... Demonstrate the effects of transactions on the accounting equation. Check the balance of the accounting equation after a business transaction has been analyzed and recorded. Define the accounting terms introduced in this chapter.

4. HARPO PRODUCTIONS, Inc. Talk show generates $104 million per year. 1986 – She created Harpo Production, Inc. First African-American woman to become a billionaire movies videos books “O” Talk show

5. Chapter 3 Worksheets Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit

6. Problem 3-1 Balancing the Accounting Equation (T-page 53) ASSETS=LIABILITIES+OWNER’S EQUITY 1$17,000=$ 7,000+ 2=$ 6,000+$20,000 3$10,000=+$ 7,000 4=$ 9,000+$17,000 5$8,000=$ 2,000+ 6$20,000=$ 7,000+ 7=$12,000+$ 4,000 8$30,000=+$22,000 9 =$ 1,000+ 10$25,000=$ 5,000+ 11=$10,000+$25,000 12$7,500=+$ 3,000 $10,000 $26,000 $ 3,000 $ 26,000 $ 6,000 $13,000 $16,000 $ 8,000 $21,000 $ 20,000 $35,000 $ 4,500

7. Problem 3-2 Determining the Effects of Transactions on the Accounting Equation (T- page 59)

8. Problem 3-2 ASSETS=LIABILITIES+ OWNER’S EQUITY Trans # Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = Accounts Payable + Jan Swift, Capital 1 2 +30,000 +700 #2: The owner transferred to the business a desk and chair valued at $700. Transaction #1: Jan Swift, owner, deposited $30,000 in the business checking account.

9. #3: WordService issued a check for $4,000 for the purchase of a computer. ASSETS=LIABILITIES+ OWNER’S EQUITY Trans # Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = Accounts Payable + Jan Swift, Capital 1 2 3 4 5 +30,000 +700 - 4,000+ 4,000 + 5,000 #4: The business bought office furniture on account for $5,000 from Eastern Furniture.

10. ASSETS=LIABILITIES+ OWNER’S EQUITY Trans # Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = Accounts Payable + Jan Swift, Capital 1+30,000 2+700 3-4,000+4,000 4+5,000 5 6 Bal+++=+ #5: The desk and chair previously transferred to the business by the owner were sold on account for $700. #6: WordService wrote a check for $2,000 in partial payment of the amount owed to Eastern Furniture Company. +700-700 -2,000 24,0007004,0005,0003,00030,700

11. ASSETS=LIABILITIES+ OWNER’S EQUITY Trans # Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = Accounts Payable + Jan Swift, Capital 1+30,000 2+700 3-4,000+4,000 4+5,000 5+700-700 6-2,000 Bal24,000+700+4,000+5,000=3,000+30,700 33,700 = 33,700 ASSETS = LIABILITIES + OWNER’S EQUITY

12. Section 3 Transactions That Affect Revenue, Expenses, and Withdrawals by the Owner Property Financial Claims = Equities Liabilities Owner’s Equity Assets= CashExpenses Revenue Decreases Owner’s Equity Decreases Assets Increase Owner’s Equity Increases Assets

13. Problem 3-3 Determining the Effects of Transactions on the Accounting Equation (T- page 63)

14. Problem 3-3 Transaction #1: Paid $50 for advertising in the local newspaper. ASSETS = LIABILITIES + OWNER’S EQUITY Trans # Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = Accounts Payable + Jan Swift, Capital Bal 24,000 7004,0005,0003,00030,700 1 2 3 4 5 6 Bal -50 +1,000 -600 -800 +200-200 23,750500 4,0005,000 3,00030,250

15. Problem 3-4 Classifying Accounts 1. John Jones, CapitalCapital 2. Cash in BankAsset 3. Accounts ReceivableAsset 4. Accounts PayableLiability 5. Office EquipmentAsset 6. Delivery EquipmentAsset 7. Camping EquipmentAsset 8.BuildingAsset 9.LandAsset 10. Computer EquipmentAsset

16. ASSETSLIABILITIESOWNER’S EQUITY Cash in Bank4,500=Accounts Payable+Mike Murray, Capital $9,250 Accounts Receivable1,350 Office Equipment5,000 =+ Problem 3-5 Completing the Accounting Equation 10,850 1,600 9,250

17. Problem 3-6 Classifying Accounts Within the Accounting Equation ACCOUNT NAMEBALANCE (1) ASSETS Total (2) LIABILITIES (3)OWNER’S EQUITY Total Cash in Bank Accounts Receivable Camping Equipment Office Equipment Accounts Payable Ronald Hicks, Capital 5,000 2,000 12,000 3,000 22,000 7,000 15,000 22,000

18. Problem 3-8 Determining the Effects of Transactions on the Accounting Equation ASSETS=LIABILITIES+ OWNER’S EQUITY Trans # Cash in Bank Accounts Receivable Office Equipment Grooming Equipment = Accounts Payable + Abe Schultz, Capital 110,000 Bal10,0000000 2-1,000+1,000 Bal9,000001,000010,000 3-900 Bal8,100001,00009,100 4+6,000 Bal8,10006,0001,0006,0009,100 5 Bal8,80006,0001,0006,0009,800 6 Bal6,80006,0001,0004,0009,800 7 Bal6,8005006,0001,0004,00010,300 +700 -2,000 +500

19. Key Terms assets Financial claims credit creditors property equities Owner’s equity liabilities Accounting equation account Accounts payable Accounts receivable Business transaction investment On account