1. Transactions That affect Revenue, Expense, and Withdrawal by the owner
Chapter 3 section 3

2. Revenue Income earned from the sale of goods or services Examples:
Fees earned for services performed
Cash received from the sale of merchandise
Increases owner’s equity because it increases the assets of the business

3. Revenue Vs. Investments
Income from the sale of a good or service
Must incur expenses to buy goods, materials, services, etc.
Increase owner’s equity
Investments:
Dollar amount contributed to the business by the owner
Example:
Maria Sanchez deposited $25,000 into Roadrunner

4. Expense Price paid for goods or services use to operate a business
The goal is to make more revenue that expenses
Fixed expenses vs. variable expenses
Decrease owner’s equity because they decrease the assets of the business OR increase liabilities
Paying with cash, check vs. paying with credit
Examples:
Rent
Utilities
Advertising

5. Transaction #8
Roadrunner received a check for $1,200 from a customer, Sims Corp., for delivery services.
Step 1: Identify which accounts are affected
Cash
Maria Sanchez, Capital
Step 2: Classify the accounts
Cash—asset
Maria Sanchez, Capital—Owner’s Equity
Step 3: +/-
Cash--$1,200 increase (+)
Maria Sanchez, Capital--$1,200 increase (+)

6. Transaction #8 Assets Liability Owner’s Equity Cash Acct. Rec.
Computer Equip
Office Equip
Delivery Equip
Acct Pay
M. Sanchez, Capital
Prev. Bal
21,850
3,000
200
12,000
11,650
25,400
Trans 8
+ 1,200
+1,200
Balance
23,050
26,600
Total Assets = Total Liability + Owner’s Equity
$ 38, , ,600
BALANCED!!

7. Business Transaction #9
Roadrunner wrote a check for $700 to pay the rent for the month.
Step 1: Identify
Cash
Maria Sanchez, Capital
Step 2: Classify
Cash—asset
Maria Sanchez, Capital—owner’s equity
Step 3: +/-
Cash--$700 decrease (-)
Maria Sanchez, Capital--$700 decrease (-)

8. Transaction #9 Step 4: Balanced? Assets Liability Owner’s Equity Cash
Acct. Rec.
Computer Equip.
Office Equip.
Delivery Equip
Acct. Pay
M. Sanchez, Capital
Prev. Bal.
23,050
3,000
200
12,000
11,650
26,600
Trans 9
700
- 700
Balance
22,350
25,900
Total Assets: Total Liability: Total Owner’s Equity
37,550 = 11, ,900

9. Withdrawals by the Owner
Generally, if a business earns revenue, the owner will take cash or other assets from the business for personal use
When assets are decreased because of a withdrawal by the owner—the owner’s business financial claim is also decreased
Decreases the asset account and the owner’s equity account

10. Expense Vs. Withdrawal Expense: Withdrawal: Decrease owner’s equity
Price paid for goods and services used to operate a business
Example: gasoline for service trucks
Withdrawal:
Cash or other assets taken from the business for the owner’s personal use

11. Transaction 10
Maria Sanchez withdrew $500 from the business for her personal use.
Step 1: Identify
Cash
Maria Sanchez, Capital
Step 2: Classify
Cash—Asset
Maria Sanchez, Capital—Owner’s Equity
Step 3: +/-
Cash-- $500—decrease (-)
Maria Sanchez, Capital—$500 decrease (-)

12. Transaction 10 Step 4: Balanced? Assets Liability Owner’s Equity Cash
Acct. Rec
Computer Equip
Office Equip
Delivery Equip
Acct. Pay
M. Sanchez, Capital
Prev. Bal
22,350
3,000
200
12,000
11,650
25,900
Trans 10
500
- 500
Balance
21,850
25,400
Total Assets: Total Liabilities Total Owner’s Equity
= 11, ,400

13. Chapter Summary Cash Acct. Rec Comp Equip Office Equip Delivery Equip
Acct. Pay
O.E.
Prev. Bal
Tran 1
+ 25,000
25,000
Tran 2
+ 400
Tran 3
-3,000
Tran 4
+ 12,000
Tran 5
+200
- 200
Tran 6
350
- 350
Tran 7
+ 200
Tran 8
+ 1,200
Tran 9
700
- 700
Tran 10
- 500
Balance
21,850 +
0 +
3,000 +
200 +
12,000 =
11,650 +
25,400
Does the accounting equation balance?

14. Section Questions 1. What effect does revenue have on a business?
Revenue increases owner’s equity because it increases business assets.
What effect do withdrawals have on a business?
A withdrawal decreases assets and owner’s equity.