1. LESSON 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts
2/25/2018
LESSON 2-3
Analyzing How Transactions Affect Owner’s Equity Accounts
Original created by M.C. McLaughlin, Thomson/South-Western
Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

2. Analyzing How Transactions Affect Owner’s Equity Accounts
LESSON 2-3
2/25/2018
Analyzing How Transactions Affect Owner’s Equity Accounts
To avoid a large # of entries businesses summarize revenue information separately from the other records in an account called Sales
Revenue/(Sales) increase owner’s equity
The owner’s capital account has a normal credit balance
Because revenue increases owner’s equity, increases in revenue are also recorded as credits.

3. RECEIVED CASH FROM SALES
LESSON 2-3
2/25/2018
RECEIVED CASH FROM SALES
page 38
August 12. Received cash from sales, $ 2 1 4 3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
LESSON 2-3

4. SOLD SERVICES ON ACCOUNT
LESSON 2-3
2/25/2018
SOLD SERVICES ON ACCOUNT
page 39
August 12. Sold services on account to Oakdale School, $ 2 1 4 3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
LESSON 2-3

5. Analyzing How Transactions Affect Owner’s Equity Accounts
LESSON 2-3
2/25/2018
Analyzing How Transactions Affect Owner’s Equity Accounts
To avoid a large # of entries for expenses, businesses use separate expense accounts to summarize expense information
Expenses decrease owner’s equity
The owner’s capital account has a normal credit balance
Because expenses decrease owner’s equity, expenses have a normal debit balance
Increases in expenses are recorded as debits

6. PAID CASH FOR AN EXPENSE
LESSON 2-3
2/25/2018
PAID CASH FOR AN EXPENSE
page 40
August 12. Paid cash for rent, $ 2 1 4 3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
LESSON 2-3

7. RECEIVED CASH ON ACCOUNT
LESSON 2-3
2/25/2018
RECEIVED CASH ON ACCOUNT
page 41
August 12. Received cash on account from Oakdale School, $ 2 1 4 3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
LESSON 2-3

8. Analyzing How Transactions Affect Owner’s Equity Accounts
LESSON 2-3
2/25/2018
Analyzing How Transactions Affect Owner’s Equity Accounts
Withdrawals decrease owner’s equity
Accounting practices account for withdrawals separately from the capital account. They are recorded in account titled Owner Name, drawing
Because withdrawals decrease owner’s equity, the withdrawal account has a normal debit balance
Increases in withdrawals are recorded as debits

9. PAID CASH TO OWNER FOR PERSONAL USE
LESSON 2-3
2/25/2018
PAID CASH TO OWNER FOR PERSONAL USE
page 42
August 12. Paid cash to owner for personal use, $ 2 1 4 3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
LESSON 2-3