1. Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit $ $
What You’ll Learn
How accounts are used in business transactions.
The steps used to analyze business transactions.
How investments by the owner affect the accounting equation.
How a cash payment transaction affects the accounting equation.
How a credit transaction affects the accounting equation. $ $

2. $ $ $ $ Why It’s Important Key Terms Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Why It’s Important
You can analyze real-world business transactions by using the accounting equation. $ $
Key Terms
business transactions
account
accounts receivable
accounts payable
on account $

3. $ $ $ $ Business Transactions Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Business Transactions
An economic event that causes a change — either an increase or a decrease — in assets, liabilities, or owner’s equity.
The increases and decreases caused by business transactions are recorded in specific accounts.
Accounts may be classified as either assets, liabilities, or owner’s equity. $ $ $

4. $ $ $ $ Business Transactions (cont'd.) Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Business Transactions (cont'd.) $
Assets = Liabilities + Owner’s Equity
Cash in Bank Accounts Maria Sanchez,
Accounts Receivable Payable Capital
Computer Equipment
Office Equipment
Delivery Equipment $ $

5. $ $ $ $ Effects of Business Transactions on the Accounting Equation
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Effects of Business Transactions on the Accounting Equation
Analyzing business transactions: $
Business Transaction $
ANALYSIS Identify
Classify
+ / -
Balance
1. Identify the accounts affected.
2. Classify the accounts affected.
3. Determine the amount of increase or decrease for each account.
4. Make sure the accounting equation remains in balance. $

6. $ $ $ $ Investments by the Owner Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner
Business Transaction 1 $
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. $
ANALYSIS Identify 1. Cash transactions are recorded in the account Cash in Bank. Maria Sanchez is investing personal funds in the business. Her investment in the business is recorded in the account called Maria Sanchez, Capital. $

7. Business Transaction 1 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 1 (cont'd.) $
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. $
ANALYSIS Classify 2. Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s equity account. $

8. Business Transaction 1 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 1 (cont'd.) $
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. $
ANALYSIS + / – 3. Cash in Bank is increased by $25,000. Maria Sanchez, Capital is increased by $25,000. $

9. Business Transaction 1 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 1 (cont'd.) $
Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service. $
ANALYSIS Balance 4. The accounting equation remains in balance. $
Assets = Liabilities + Owner’s Equity
Cash in Bank Maria Sanchez, Capital
Trans. 1 +$25,000 = 0 + +$25,000

10. $ $ $ $ Investments by the Owner (cont'd.) Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 2 $
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment. $
ANALYSIS Identify 1. The business received two telephones. Since a telephone is office equipment, the account Office Equipment is affected. Maria Sanchez invested a personal asset in the business, so the account Maria Sanchez, Capital is affected. $

11. Business Transaction 2 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 2 (cont'd.) $
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment. $
ANALYSIS Classify 2. Office Equipment is an asset account. Maria Sanchez, Capital is an owner’s equity account. $

12. Business Transaction 2 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 2 (cont'd.) $
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment. $
ANALYSIS + / – 3. Office Equipment is increased by $400. Maria Sanchez, Capital is increased by $400. $

13. Business Transaction 2 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Investments by the Owner (cont'd.)
Business Transaction 2 (cont'd.)
The owner, Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment. $
ANALYSIS Balance 4. The accounting equation remains in balance. $
Assets = Liabilities + Owner’s Equity
Cash Office Maria Sanchez,
in Bank Equip. Capital
Prev. Bal. $25, $25,000
Trans
Balance $25,000 + $400 = 0 + $25,400 $

14. $ $ $ $ Cash Payment Transactions Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Cash Payment Transactions
Business Transaction 3 $
Roadrunner issued a $3,000 check to purchase a computer system.
ANALYSIS Identify 1. The Computer Equipment account is used to record transactions involving any type of computer equipment. The business paid cash for the computer system, so the account Cash in Bank is affected. (Payments made by check are treated as cash payments and are recorded in the Cash in Bank account.) $ $

15. Business Transaction 3 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Cash Payment Transactions (cont'd.) $
Business Transaction 3 (cont'd.)
Roadrunner issued a $3,000 check to purchase a computer system. $
ANALYSIS Classify 2. Computer Equipment and Cash in Bank are both asset accounts. $

16. Business Transaction 3 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Cash Payment Transactions (cont'd.) $
Business Transaction 3 (cont'd.)
Roadrunner issued a $3,000 check to purchase a computer system. $
ANALYSIS + / – 3. Computer Equipment is increased by $3,000. Cash in Bank is decreased by $3,000. $

17. Business Transaction 3 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Cash Payment Transactions (cont'd.)
Business Transaction 3 (cont'd.) $
Roadrunner issued a $3,000 check to purchase a computer system.
ANALYSIS Balance 4. The accounting equation remains in balance. $
Assets = Liabilities + Owner’s Equity
Cash Computer Office Maria Sanchez,
in Bank Equip. Equip. Capital
Prev. Bal. $25, $ $25,400
Trans. 3 – 3,000 +3,000
Balance $22, $3, $400 = 0 + $25,400 $

18. $ $ $ $ Credit Transactions Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Credit Transactions
Business Transaction 4 $
Roadrunner bought a used truck on account from North Shore Auto for $12,000.
ANALYSIS Identify 1. Roadrunner purchased a truck to be used as a delivery vehicle, so the account Delivery Equipment is affected. The business promised to pay for the truck at a later time. This promise to pay is a liability; therefore, the Accounts Payable account is affected. $ $

19. Business Transaction 4 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Credit Transactions (cont'd.)
Business Transaction 4 (cont'd.) $
Roadrunner bought a used truck on account from North Shore Auto for $12,000. $
ANALYSIS Classify 2. Delivery Equipment is an asset account. Accounts Payable is a liability account. $

20. Business Transaction 4 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Credit Transactions (cont'd.)
Business Transaction 4 (cont'd.) $
Roadrunner bought a used truck on account from North Shore Auto for $12,000. $
ANALYSIS + / – 3. Delivery Equipment is increased by $12,000. Accounts Payable is also increased by $12,000. $

21. Business Transaction 4 (cont'd.)
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Credit Transactions (cont'd.)
Business Transaction 4 (cont'd.)
Roadrunner bought a used truck on account from North Shore Auto for $12,000. $
ANALYSIS Balance 4. The accounting equation remains in balance. $
Assets = Liabilities + Owner’s Equity
Cash Computer Office Delivery Accounts Maria Sanchez,
in Bank Equip. Equip. Equip. Payable Capital
Prev. Bal. $22, ,000 $ $25,400
Trans. 4 – +12, ,000
Balance $22, $3,000 + $400 +$12,000 = $12,000 + $25,400 $

22. $ $ $ $ Check Your Understanding Chapter 3
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit (cont'd.)
Chapter 3 $
Check Your Understanding $
When a business transaction occurs, what is the role of the accountant or accounting clerk? $ $