2. Property The purpose of accounting is to provide:
Property and Financial Claims
Section 3.1
Financial information about property
The purpose of accounting is to provide:
Financial claim to property
property
Anything of value that a person or business owns.
financial claim
A legal right to property.
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3. Accounting Equation: Assets = Liabilities + Owners Equity Why is it important? To make sure everything is accounted for and the business knows their money and property balance out.
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4. = Property Property is anything of value that is owned
Property and Financial Claims
Section 3.1
Property is anything of value that is owned
Or the company has a financial claim to. =
Financial Claims
Property
Property and Financial claims are measured in: MONEY
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5. The financial claim is shared.
Property
Property and Financial Claims
Section 3.1
A creditor lends you money.
The financial claim is shared.
You buy something on credit.
credit
When you buy something and agree to pay for it later.
creditor
Any person or business to which you owe money.
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6. Property
Property and Financial Claims
Section 3.1
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7. Financial Claims in Accounting
Property and Financial Claims
Section 3.1
Land
assets
Property or items of value owned by a business.
Buildings
Cash
Assets
Manufacturing Equipment
Office Equipment
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8. Financial Claims in Accounting
Property and Financial Claims
Section 3.1
Owner’s
Equity
Equity
equity
The accounting term for the financial claim to assets.
owner’s equity
The owner’s claim to the assets of a business.
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9. Financial Claims in Accounting
Property and Financial Claims
Section 3.1
The Accounting Equation
liabilities
Amounts owed to creditors; the claims of creditors to the assets of a business.
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10. The accounting equation: Assets = Liabilities + Owner’s Equity
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11. Business Transactions
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Buying a sweater or putting cash in your savings account are examples of business transactions.
business transaction
An economic event that causes a change—either an increase or decrease—in assets, liabilities, and/or owner’s equity.
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12. Business Transactions
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Accounts receivable
A business records changes in subdivisions called accounts.
Accounts payable
account
A subdivision under classification of assets, liabilities, or owner’s equity.
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13. 3 classifications of accounts are the same as the accounting equation accounts:
Assets
Liabilities
Owner’s Equity
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14. Owner’s Equity Account:
5 Asset Accounts:
Cash in Bank
Accounts Receivable
Delivery Equipment
Store Equipment
Buildings
Liability Account:
Accounts Payable
Owner’s Equity Account:
OWNER, Capital
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15. Business Transactions
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Steps for analyzing a business transaction
Make sure the accounting equation remains in balance. 4
Determine the amount of increase or decrease for each account affected. 3 2
Classify the accounts affected. 1
Identify the accounts affected.
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16. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze a cash investment transaction:
Business Transaction 1
Christa Vargas took $25,000 from personal savings and deposited that amount to open a business checking account in the name Zip Delivery Service.
See page 58
investment
Money or other property paid out in order to produce a profit.
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17. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Business Transaction 2
Christa Vargas transferred two telephones valued at $200 each from her home to the business.
See page 59
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18. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze a cash purchase business transaction:
Business Transaction 3
Zip issued a $3,000 check to purchase a computer system.
See page 59
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19. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze a purchase on account business transaction:
Business Transaction 4
Zip bought a used truck on account from Coast to Coast Auto for $12,000.
See page 60
on account
When a business buys an item on credit.
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20. Revenue and Expense Transactions
Transaction That Affect Revenue, Expense, and Withdrawals by the Owner
Section 3.3
Examples of Revenue
Fees earned for services performed
Cash received from the sale of merchandise
revenue
Income earned from the sale of goods or services.
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21. Revenue and Expense Transactions
Transaction That Affect Revenue, Expense, and Withdrawals by the Owner
Section 3.3
Examples of Expenses
Rent
Utilities
Advertising
expense
The cost of products or services used to operate a business.
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22. Withdrawals by the Owner
Transaction That Affect Revenue, Expense, and Withdrawals by the Owner
Section 3.3
Withdrawals decrease assets and owner’s equity.
Investments increase assets and owner’s equity.
withdrawal
When the owner takes cash or other assets from the business for personal use.
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23. Question 2
A business owner invests $12,000 cash in the business. How would you analyze this transaction?
Identify the accounts affected.
a. Cash in Bank is affected.
b. Owner’s Capital is affected.
Classify the accounts affected.
a. Cash in Bank is an asset account.
b. Owner’s Capital is an owner’s equity account.
Determine the amount of increase or decrease for each account affected.
a. Cash in Bank is increased by $12,000.
b. Owner’s Capital is increased by $12,000.
Make sure the accounting equation remains in balance Assets = Liabilities + Owner’s Equity
$12,000 = $12,000
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24. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze a revenue transaction:
Business Transaction 5
Christa Vargas received a check for $1,200 from a customer, Sims Corporation, for delivery services.
Trans. 5
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25. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze an expense transaction:
Business Transaction 6
Zip Delivery service wrote a check for $700 to pay the rent for the month.
Trans. 6
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26. Transactions and the Accounting Equation
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Analyze a withdrawal transaction:
Business Transaction 7
Christa Vargas withdrew $500 from the business for her personal use.
Trans. 7
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