2. Any item of property has at least one financial claim against it
Any item of property has at least one financial claim against it. Accounts are used to analyze business transactions. Owner’s equity is changed by revenue, expenses, and withdrawals.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. 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.
Learn how businesses use accounts.
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.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Key Terms property financial claim credit creditor assets equity
Property and Financial Claims
Section 3.1
Key Terms
property
financial claim
credit
creditor
assets
equity
owner’s equity
liabilities
Glencoe Accounting

5. 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.
Glencoe Accounting

6. = Property Financial Claims Property Property and Financial Claims
Section 3.1 =
Financial Claims
Property
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7. 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.
Glencoe Accounting

8. Property
Property and Financial Claims
Section 3.1
Glencoe Accounting

9. 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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10. 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.
Glencoe Accounting

11. 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.
Glencoe Accounting

12. Key Terms business transaction account accounts receivable
Section 3.2
Transaction That Affect Owner’s Investment, Cash, and Credit
Key Terms
business transaction
account
accounts receivable
accounts payable
investment
on account
Glencoe Accounting

13. 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.
Glencoe Accounting

14. 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 assets, liabilities, or owner’s equity.
Glencoe Accounting

15. 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
accounts receivable
The total amount of money owed to a business—money to be received later because of the sale of goods or services on credit.
accounts payable
The amount owed, or payable, to the creditors of a business.
Glencoe Accounting

16. 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.
Glencoe Accounting

17. 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.
Glencoe Accounting

18. 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
Glencoe Accounting

19. 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
Glencoe Accounting

20. 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.
Glencoe Accounting

21. Key Terms revenue expense withdrawal Section 3.3
Transaction That Affect Revenue, Expense, and Withdrawals by the Owner
Section 3.3
Key Terms
revenue
expense
withdrawal
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22. 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.
Glencoe Accounting

23. 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.
Glencoe Accounting

24. 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.
Glencoe Accounting

25. Step 1 Step 2 Step 3 Question 1
O’Donnell’s Car Wash has the following assets and liabilities.
Assets: Cash in Bank $9,500; Accounts Receivable $500; Computer Equipment $3,500; Car Wash Equipment $75,000; Building $450,000
Liabilities: Alto’s Equipment Service $2,500; First National Bank (mortgage on building) $200,000
What is the owner’s equity for O’Donnell’s?
Step 1
Calculate total assets.
$9,500 + $500 + $3,500 + $75,000 + $450,000 = $538,500
Step 2
Calculate total liabilities.
$2,500 + $200,000 = $202,500
Step 3
Calculate owner’s equity. $538,500 - $202,500 = $336,000
Glencoe Accounting

26. 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
Glencoe Accounting

27. End of