1. Demonstrate How Transactions Affect the Accounting Equation
Principles of Cost Analysis and Management
Show Slide #1: Demonstrate How Transactions Affect the Accounting Equation
References: FM 1-06, Slides, Handouts, Excel Spreadsheets
Facilitator Material: Each primary facilitator should possess a lesson plan, slide deck, course handouts, and practical exercise, and FM 1-06."All required references and technical manuals will be provided by the “School House
Learner Material: Learners should possess standard classroom supplies, course handouts, practical exercises, FM All required references and technical manuals will be provided by the School House.
Instructor Actions: Classroom Setup: 30 minutes

2. Remember… Revolving funds use the accrual basis of accounting
Remember… Revolving funds use the accrual basis of accounting. Accrual accounting records an Asset and a Liability when the goods are received …and an Expense when goods are consumed. We will look at an almost identical set of transactions, but use a different method of measuring the activity.
Show Slide #2: Concrete Experience (Motivational)
Facilitator’s Note: (Concrete Experience 5 minutes) Present Learners the slide questions. Ask Learners what their thoughts are on “Transactions affecting the Accounting Equation”
Facilitator’s Note: (Publish and Process 5 minutes) the critical portion of this part of the ELM process is to force the Learners to reflect. Ask a series of thought influencing questions, for example: Could the Battle of the bulge have been won if All Battle Maps of Ardennes Forest Looked like this?

3. Terminal Learning Objective
Action: Demonstrate How Transactions Affect the Accounting Equation
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international students)
Explain accounting terminology
Analyze transactions for effects on the accounting equation
Enter transactions into the accounting equation
Show Slide #3: TLO
Action: Demonstrate How Transactions Affect the Accounting Equation
Conditions: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international students) you must: , Explain accounting terminology, Analyze transactions for effects on the accounting equation, and Enter transactions into the accounting equation
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 DELIBERATE RISK ASSESSMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Environmental Considerations: Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to FM Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
INSTRUCTIONAL LEAD-IN. The example on the previous slide is intended to provoke an “outside looking in” approach to identifying similarities between Battlefield Management and Cost Management.

4. Review: Financial Position
The following equation represents financial position:
Assets = Liabilities + Financial Position
What is an asset?
Something owned that represents future benefit
What is a liability?
Something owed or a creditor’s claim against assets
Financial position can also be called equity, net assets, or fund balance
Assets = Liabilities + Financial Position
Something owned that represents future benefit
Show Slide #4: Explain accounting terminology
1. Learning Step/Activity #1 Explain accounting terminology
Method of Instruction: DSL (large or small group discussion)
Facilitator to Learner Ratio: 2:25
Time of Instruction: 20 minutes
Media: Power Point Presentation, Printed Reference Materials
Facilitator's Note: Before facilitating this lesson, ask the students which of the 21st Century Soldier Competency do they think pertain to this lesson? Facilitate a discussion on the answers given and at the end of the lesson revisit it and see if the students still believe their choice are the same.
Note: For this lesson these competencies should be talked about. (Delete those that do not apply)
1. Character and accountability
2. Communication and engagement (oral, written, and negotiation)
3. Critical thinking and problem solving
4. Tactical and technical competence (full spectrum capable)
Facilitator’s Note: Before explaining the equation, Learners must first learn the definitions. E.g.
What is an asset? (Facilitate discussion on answers given)
Answer: Something owned that represents future benefit
What is a liability? (Facilitate discussion on answers given)
Answer: Something owed or a creditor’s claim against assets
Financial position can also be called equity, net assets, or fund balance
Something owed or a creditor’s claim against assets

5. Lacy’s Lemonade Stand
Lacy Simmons receives a $200 transfer from the family to start a lemonade stand.
The lemonade stand will run as a revolving fund
User fees must cover costs
Uses Accrual Basis of Accounting
How will this be recorded in the Family’s financial equation?
Show Slide #5: Lacy’s Lemonade Stand
Facilitator Read and facilitate discussion on the following scenario to the class; Lacy Simmons receives a $200 transfer from the family to start a lemonade stand.
The lemonade stand will run as a Revolving Fund; User Fees must cover costs and Uses Accrual Basis of Accounting. Question; How will this be recorded in the Family’s financial equation?
A transfer will be recorded as Transfer Out from the family “General Fund”. This will reduce the general fund balance. It will be recorded as a Transfer in to the Revolving fund. Each fund is a separate accounting entity (self-balancing set of accounts.) The Transfer in to Lacy’s revolving fund is considered an “other financing source” on the statement of activities and increases financial position.
How does this differ from the appropriation that she received in yesterday’s lesson 2.2, Budgetary Accounting? In 2.2, operating as an appropriation-funded entity, Lacy’s revenues were not expected to offset all of her expenditures. In contrast, revolving funds are expected to charge user fees that will cover operating expenses. The transfer is just startup capital.

6. What’s the Difference? Consider the purchasing sequence:
Accrual accounting records an asset and a liability when the goods are received
…and an expense when goods are consumed
Plan
Order
Receive
Pay
Consume
Asset & Liability  Remove Liability  Expense
Show Slide #6: What’s the Difference?
Facilitator’s Note: (Facilitate discussion using the slide) as a reminder, revolving funds use the accrual basis of accounting. Accrual accounting records an Asset and a Liability when the goods are received …and an Expense when goods are consumed. We will look at an almost identical set of transactions, but use a different method of measuring the activity.

7. Review: Financial Activity
The following equation represents financial activity:
Revenue – Cost = Change in Financial Position
What is a revenue?
Represent earnings received in cash
Increase Assets
and Increase Financial Position
What is a cost?
Represent cash payments for goods and services received
Decrease Assets and Decrease Financial Position
Revenue – Cost = Change in Financial Position
Represent earnings received in cash
Increase assets and increase financial position
Show Slide #7: Review: Financial Position (Cont.)
Facilitator’s Note: (Facilitate discussion using the slide) the following equation represents Financial Activity:
Revenue – Cost = Change in Financial Position
Cash payments for goods & services received
Decrease assets and decrease financial position

8. Review: Three Ways to Measure
Cash Basis:
Budgetary Basis:
Accrual Basis:
Plan
Order
Receive
Pay
Consume
Plan
Order
Receive
Pay
Consume
Show Slide #8: Explain accounting terminology (Cont.)
Facilitator’s Note: (Facilitate discussion using the slide) under the cash basis of accounting, costs are counted when they are paid in cash
Under the budgetary basis of accounting, the expenditure is counted when the goods or services are received. At this time a liability is recorded in the proprietary accounts of the fund.
Under the Accrual basis of accounting, the expense is counted when the goods or services are consumed, or some benefit is received.
Commitment  Obligation  Expenditure
Plan
Order
Receive
Pay
Consume
Asset & Liability  Remove Liability  Expense

9. The Accrual Basis of Accounting
Focuses on exchange of Economic Resources
Records Revenues in the period in which they are EARNED
Providing a service
Selling a product
Show Slide #9: Explain accounting terminology (Cont.)
Facilitator’s Note: (Facilitate discussion using the slide) the accrual basis of accounting focuses on the exchange of Economic Resources. If resources have been exchanged – that is, value given for value received – activity will be recorded. This Records Revenues in the period in which they are EARNED
Providing a service
Selling a product
The sequence might go like this:
The organization PLANS for revenues – this includes hiring employees and acquiring the resources necessary to produce the products or services they will sell.
Then, the organization may TAKE ORDERS for goods or services.
Next, the services are completed or the products are shipped.
Then, they would receive payment.
Under the accrual basis of accounting, the revenues are counted at the time they are earned, when the service is completed or the product is shipped.
Plan
Take
Orders
Complete Service or Ship Product
Collect
Cash
Revenue & Non-Cash Asset

10. Revenue Comparison Cash Basis: Accrual Basis: Plan Take Orders
Complete Service or Ship Product
Collect
Cash
Show Slide #10: Explain accounting terminology (Cont.)
Facilitator’s Note: (Facilitate discussion using the slide) Under the Cash basis, revenue is counted when the cash is collected. Under the budgetary basis (not pictured here) the spending authority is increased when cash is collected. The timing is the same.
Under the Accrual basis, it is counted when the service is completed or the product is shipped.
Plan
Take
Orders
Complete Service or Ship Product
Collect
Cash
Revenue & Non-Cash Asset

11. The Accrual Basis of Accounting
“Matches” Revenues with Expenses
It take money to make money
Records Expenses in period INCURRED
Resources Consumed
Show Slide #11: Explain accounting terminology (Cont.)
Facilitator’s Note: (Facilitate discussion using the slide) Matches Revenues with Expenses
You’ve heard the expression “It takes money to make money”. Expenses represent the money that you spend to make money. For example, you can’t sell products if you don’t first either buy or manufacture products to sell. You can’t provide services if you don’t have facilities, employees, or the necessary supplies and equipment. In order to give a true picture of the organization’s financial activities, these costs must be recorded in the same period as the revenues they helped to generate. This is known as “matching” expenses and revenue.
Records Expenses in period INCURRED
Resources Consumed
Plan
Order
Receive
Pay
Consume
Asset & Liability  Remove Liability  Expense

12. Terminology How do expenses differ from costs?
Costs can be measured in various ways, according to management’s use of the information
Expenses are measured according to Generally Accepted Accounting Principles
Show Slide #12: Explain accounting terminology (Cont.)
Facilitator’s Note: How do Expenses differ from Costs?
Costs can be measured in various ways, according to management’s use of the information. In day 4 we will begin looking at some of the different ways of measuring costs.
Expenses are measured according to Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) is essentially a proper noun.

13. Terminology
Expenses may be recorded before cash is paid, when cash is paid, or after cash is paid
Expense before cash:
Employees work two weeks at the end of September but will be paid in October
Expense after cash:
Insurance premium for one year is paid 30-Sept and benefits the next fiscal year
Show Slide #13: Explain accounting terminology (Cont.)
Facilitator’s Note: Expenses may be recorded before cash is paid, when cash is paid, or after cash is paid
Expense before cash:
Employees work two weeks at the end of September but will be paid in October. Under accrual accounting, the expense will be recorded in the period in which the employees worked, NOT when they are paid.
Expense after cash:
Insurance premium for one year is paid 30-Sept and benefits the next fiscal year. Under accrual accounting, the payment of the insurance premium will be recorded when the insurance is actually used up.

14. Terminology How do expenses differ from expenditures?
Expenditures represent the using up of an appropriation, and are recorded in the period goods or services are received
Expenses are recorded in the period resources are consumed
Show Slide #14: Explain accounting terminology (Cont.)
Facilitator’s Note: How do Expenses differ from Expenditures?
Expenditures represent the using up of an Appropriation, and are recorded in the period goods or services are received.
Expenses are recorded in the period resources are consumed.

15. Consider Office Supplies
Under Budgetary Accounting:
Under Accrual Accounting:
Plan
Order
Receive
Pay
Consume
Commitment  Obligation  Expenditure
Show Slide #15: Explain accounting terminology (Cont.)
Facilitator’s Note: Under budgetary accounting, the supplies are counted as an expenditure when they are received. Even if they are ordered and received at the very end of the year, they are recorded as an expenditure in the year they are received.
Under accrual accounting, supplies are not recorded as an expense until they are used up.
Plan
Order
Receive
Pay
Consume
Asset & Liability  Remove Liability  Expense

16. It’s ok, we bought this paper last year!
Show Slide #16: Explain accounting terminology (Cont.)
Facilitator’s Note: Everyone is familiar with the end of year process of using up the part of the budget that you’ve been saving all year in case of an emergency. The goods purchased at the end of one year will undoubtedly be used in the next. However, they may be seen as “free goods” because they don’t have any impact on the budget of the current year.

17. Terminology
An account is a record of the changes in a particular asset, liability, revenue, expense or element of financial position
A transaction represents an exchange of resources that affects two or more accounts
External transactions involve exchanging resources with parties outside the organization
Internal transactions involve exchanges within the organization
record
changes
exchange
resources
External transactions involve exchanging resources with parties outside the organization
Show Slide #17: Explain accounting terminology (Cont.)
Facilitator’s Note: An account is a record of the changes in a particular asset, liability, revenue, expense or element of financial position. A transaction represents an exchange of resources that affects two or more accounts
Internal transactions involve exchanges within the organization
Transactions are the common building block of all accounting information

18. LSA #1 Check on Learning
Q1. Under the accrual basis of accounting, when is revenue recorded?
Q2. Where does the term “Double Entry Accounting” originate?
A1. When it is EARNED – when service is completed or product is sold
Show Slide #18: LSA #1 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. Under the accrual basis of accounting, when is revenue recorded?
A1. When it is EARNED – when service is completed or product is sold
Q2. Where does the term “Double Entry Accounting” originate?
A2. From the concept that a transaction is an exchange that affects two or more accounts.
A2. From the concept that a transaction is an exchange that affects two or more accounts.

19. LSA #1 Summary
During this block we reviewed what Financial Position was. We identified and defined basic accounting terminology as well as discussed three ways to measure financial activity within an entity.
Show Slide #19 LSA #1 Summary
Facilitator’s Note: LSA Summary:
During this block we reviewed what Financial Position was. We identified and defined basic accounting terminology as well as discussed three ways to measure financial activity within an entity.

20. The Accounting Equation Expanded
Assets = Liabilities + Fin.Position ± Net Change Net Change = Revenue – Expense Therefore: Assets = Liab + Fin.Position + Rev – Expense Assets may be cash or other assets, so: Cash + Other Assets = Liab + Fin.Position + Rev – Expense
Show Slide #20: Analyze transactions for effects on the accounting equation
2. Learning Step/Activity #2 Analyze transactions for effects on the accounting equation
Method of Instruction: DSL (large or small group discussion)
Facilitator to Learner Ratio: 2:25
Time of Instruction: 15 minutes
Media: Power Point Presentation, Printed Reference Materials
Facilitator’s Note: Here’s some theory that will help us to understand how transactions are recorded. Everything is based on the original accounting equation from lesson 1.3.
Assets = Liabilities and financial position
Financial position will increase or decrease with changes. So, the equation could be stated as:
Assets = Liabilities + Financial Position ± Net Change
Net change is stated as:
Net Change = Revenue – Expense
Therefore:
Assets = Liabilities + Financial Position + Rev – Expense
Assets may be Cash or Other Assets, so:
Cash + Other Assets = Liabilities + Financial Position + Rev – Expense

21. Transactions and Financial Position
Liab
Cash
Fin.Position
Show Slide #21: Analyze transactions for effects on the accounting equation (Cont.)
Facilitator’s Note: This picture illustrates how the scale or the equation must always be kept in balance. If there is an increase in the total assets on the left side, there must be a corresponding increase on the right side of the scale. When revenue is earned, assets increase and revenue increases. When liabilities are repaid, assets decrease on the left side and liabilities decrease on the right side. Or, exchanges can be made on only one side of the scale. For example, paying cash to purchase supplies or equipment would decrease cash but increase other assets.
Other Assets
+ Rev – Expense

22. LSA #2 Check on Learning
Q1. What activity causes assets and financial position to increase? Q2. What is the effect on the accounting equation when the rent for the month is paid in cash?
A1. Revenues
Show Slide #22: LSA #2 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. What activity causes assets and financial position to increase?
A1. Revenues
Q2. What is the effect on the accounting equation when the rent for the month is paid in cash?
A2. Cash decreases and financial position decreases.
A2. Cash decreases and financial position decreases.

23. LSA #2 Summary
During this block we discussed the accounting equation and expanded the equation to include both revenues and expenses. We also discussed how this equation must balance at all times represented by a scale.
Show Slide #23 LSA #2 Summary
Facilitator’s Note: LSA Summary:
During this block we discussed the accounting equation and expanded the equation to include both revenues and expenses. We also discussed how this equation must balance at all times represented by a scale.

24. Transaction Description
Lacy’s Transactions
Receives $200 equity transfer
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Beginning Balances
Show Slide #24: Lacy’s Transactions
3. Learning Step/Activity #3 Enter transactions into the accounting equation
Method of Instruction: DSL (large or small group discussion)
Facilitator to Learner Ratio: 2:25
Time of Instruction: 15 minutes
Media: Power Point Presentation, Printed Reference Materials
Facilitator’s Note: Learners will have the blank slide. The facilitator should feel free to work through the transactions on the board rather than using the slides. Facilitate discussion each time you advance slide and totals enter on the board.
Lacy receives $200 equity transfer

25. Transaction Description
Lacy’s Transactions
Receives $200 equity transfer
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Beginning Balances
Receives $200 Equity Transfer
+200
New Balance
200
Show Slide #25: Lacy’s Transactions
Facilitator’s Note: Lacy’s business starts with zero balances in every column. When she receives the transfer from the family’s general fund, it increases her cash balance and her financial position. As a result, the ending equation is in balance:
Cash other assets 0 = Liabilities 0 + Financial position Revenue 0 – Expenses 0

26. Transaction Description
Lacy’s Transactions
Buys a pitcher, a juicer, and a table at a yard sale for $20
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
200
Show Slide #26: Lacy’s Transactions
Facilitator’s Note: Lacy buys a pitcher, a juicer, and a table at a yard sale for $20

27. Transaction Description
Lacy’s Transactions
Buys a pitcher, a juicer, and a table at a yard sale for $20
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
200
Buys pitcher, juicer & table at yard sale for $20
-20
+20
New Balance
180 20
Show Slide #27: Lacy’s Transactions
Facilitator’s Note: Beginning balance
Cash other assets 0 = Liabilities 0 + Financial position Revenue 0 – Expenses 0
When Lacy purchases the pitcher, juicer and table, Cash decreases and other assets increase. Why aren’t the pitcher, juicer and table considered to be expenses? After all, they were considered expenditures under budgetary accounting criteria (goods received). They are considered assets because they have FUTURE BENEFIT and that benefit has yet to be received. The benefit will be received as Lacy uses these items in her lemonade stand business. This is an example of exchanging asset for asset. Notice that the total assets are still 200, they have just been re-arranged between cash and other assets. There has been no change on the right side of the equation.
New balance
Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 0

28. Transaction Description
Lacy’s Transactions
Has flyers printed for $10
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
180 20
200
Show Slide #28: Lacy’s Transactions
Facilitator’s Note: Lacy has flyers printed for $10

29. Transaction Description
Lacy’s Transactions
Has flyers printed for $10
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
180 20
200
Has flyers printed $10
-10
+10
New Balance
170 10
Show Slide #29: Lacy’s Transactions
Facilitator’s Note: Balance forward
Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 0
The flyers are an expense (they will be used right away.) So, cash decreases and expenses increase. That leaves the new balance of the equation as:
New balance
Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 10
Notice that there was no transaction recorded when Lacy ordered the flyers. That is because, as a revolving fund, Lacy does not use the budgetary basis of accounting. There is no need to record obligations.

30. Transaction Description
Lacy’s Transactions
Has flyers printed for $10
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
180 20
200
Has flyers printed $10
-10
+10
New Balance
170 10
Show Slide #30: Lacy’s Transactions
Facilitator’s Note: Note that even while expenses INCREASE, since they represent a decrease in financial position the scale still remains in balance. Both sides equal 190.
190
190

31. Transaction Description
Lacy’s Transactions
Pays Bert $5 to pass out flyers
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
170 20
200 10
Show Slide #31: Lacy’s Transactions
Facilitator’s Note: Lacy pays Bert $5 to pass out flyers

32. Transaction Description
Lacy’s Transactions
Pays Bert $5 to pass out flyers
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
170 20
200 10
Pays Bert $5 to pass out flyers -5 +5
New Balance
165 15
Show Slide #32: Lacy’s Transactions
Facilitator’s Note: Balance forward:
Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 10
Bert passes out flyers, the resource is consumed immediately and the payment is recorded as an expense
New balance:
Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 15

33. Transaction Description
Lacy’s Transactions
Purchases supplies: cups, $15; napkins $5; lemons, $25; sugar, $10 and ice, $10
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
165 20
200 15
Show Slide #33: Lacy’s Transactions
Facilitator’s Note: Lacy purchases supplies: cups, $15; napkins $5; lemons, $25; sugar, $10 and ice, $10 .

34. Transaction Description
Lacy’s Transactions
Purchases supplies: cups, $15; napkins $5; lemons, $25; sugar, $10 and ice, $10
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
165 20
200 15
Purchases Supplies $65
-65
+65
New Balance
100 85
Show Slide #34: Lacy’s Transactions
Facilitator’s Note: Cash other assets 20 = Liabilities 0 + Financial position Revenue 0 – Expenses 15
The supplies are assets because they have future benefit. They will be converted to lemonade at some point and sold. Cash decreases. This is another example of exchanging asset for asset. There was no change on the right side of the equation.
Cash other assets 85 = Liabilities 0 + Financial position Revenue 0 – Expenses 15

35. Transaction Description
Lacy’s Transactions
First day’s sales: $15 in cash and $20 in IOUs
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
100 85
200 15
Show Slide #35: Lacy’s Transactions
Facilitator’s Note: First day’s sales are $15 in cash and $20 in IOUs

36. Transaction Description
Lacy’s Transactions
First day’s sales: $15 in cash and $20 in IOUs
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
100 85
200 15
Sales $15 cash and $20 IOUs
+15
+20
+35
New Balance
115
105 35
Show Slide #36: Lacy’s Transactions
Facilitator’s Note: Cash other assets 85 = Liabilities 0 + Financial position Revenue 0 – Expenses 15
The revenue is counted even though cash is not received, because Lacy sold the product. The measurement criteria for revenues, under the accrual basis of accounting, is when revenues are EARNED by selling a product or providing a service. Revenues increase on the right side of the equation, and total assets increase on the left side. The IOUs are considered an asset becase they have future benefit to Lacy: she has the right to collect from the individuals who gave them.
Cash other assets 105 = Liabilities 0 + Financial position Revenue 35 – Expenses 15

37. Transaction Description
Lacy’s Transactions
First day’s sales: $15 in cash and $20 in IOUs
IOUs are known as “Accounts Receivable”
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
100 85
200 15
Sales $15 cash and $20 IOUs
+15
+20
+35
New Balance
115
105 35
Show Slide #37: Lacy’s Transactions
Facilitator’s Note: In business terminology IOUs are known as Accounts Receivable. They represent a right to collect cash from the customer at some point in the future.

38. Key Points Each transaction must keep the equation in balance
Each transaction affects at least two accounts
Which accounts are being affected?
What type of accounts are they? (Asset, Liability, Financial Position, Revenue, Expense)
Are the accounts increasing or decreasing?
Show Slide #38: Demonstration (Key Points)
Facilitator’s Note: The key points are that:
Each transaction must keep the equation in balance
Each transaction affects at least two accounts
Learners should ask themselves:
Which accounts are being affected?
What type of accounts are they? (Asset, Liability, Financial position, Revenue, Expense)
Are the accounts increasing or decreasing?

39. Additional Transactions
Receives $5 cash toward the IOUs
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
115
105
200 35 15
Show Slide #39: Demonstration (Additional Transactions)
Facilitator’s Note: Lacy receives $5 cash toward the IOUs, Cover the following; Cash other assets 105 = Liabilities 0 + Financial position Revenue 35 – Expenses 15

40. Additional Transactions
Receives $5 cash toward the IOUs
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
115
105
200 35 15
Receives $5 toward IOUs +5 -5 -
New Balance
120
100
Show Slide #40: Demonstration (Additional Transactions)
Facilitator’s Note:
Cash other assets 105 = Liabilities 0 + Financial position Revenue 35 – Expenses 15
When Lacy receives the cash payment toward the IOUs, notice that there is NO INCREASE in revenues, because Lacy didn’t sell any more lemonade. She is just being paid for what she already did in the past. Instead, cash increases and other assets decrease.
Cash 120+ other assets 100 = Liabilities 0 + Financial position Revenue 35 – Expenses 15

41. Additional Transactions
Opens a charge at the grocery store with a $50 limit
This has no effect on the equation because no exchange of resources has yet taken place
Show Slide #41: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Lacy opens a charge at the grocery store with a $50 limit
This has no effect on the equation because no exchange of resources has yet taken place

42. Additional Transactions
Purchases $40 in supplies on account at the grocery store
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
120
100
200 35 - 15
Show Slide #42: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Purchases $40 in supplies on account at the grocery store

43. Additional Transactions
Purchases $40 in supplies on account at the grocery store
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
120
100
200 35 - 15
Buy Supplies on Account $40
+40
New Balance
140 40
Show Slide #43: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Cash 120+ other assets 100 = Liabilities 0 + Financial position Revenue 35 – Expenses 15
Supplies (Other assets) increase. Liabilities also increase since Lacy used her line of credit at the grocery store.
Cash 120+ other assets 140 = Liabilities 40 + Financial position Revenue 35 – Expenses 15

44. Additional Transactions
Makes cash sales of $50
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
120
140 40
200 35 - 15
Show Slide #44: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Lacy makes cash sales of $50

45. Additional Transactions
Makes cash sales of $50
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
120
140 40
200 35 - 15
Cash Sales $50
+50
New Balance
170 85
Show Slide #45: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Cash 120+ other assets 140 = Liabilities 40 + Financial position Revenue 35 – Expenses 15
Product has been sold, so revenue is earned. Revenue increases. Assets, in this case cash, also increase.
Cash 170+ other assets 140 = Liabilities 40 + Financial position Revenue 85 – Expenses 15

46. Additional Transactions
Pays the grocery bill in full
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
170
140 40
200 85 - 15
Show Slide #46: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Lacy pays the grocery bill in full

47. Additional Transactions
Pays the grocery bill in full
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
170
140 40
200 85 - 15
Pays Grocery Bill
-40
New Balance
130
Show Slide #47: Demonstration (Additional Transactions)
Facilitator’s Note: Learners will have the blank slide Demonstration
Cash 170+ other assets 140 = Liabilities 40 + Financial position Revenue 85 – Expenses 15
Cash decreases and so does the liability.
Cash 130+ other assets 140 = Liabilities 0 + Financial position Revenue 85 – Expenses 15

48. Additional Transactions
Pays the grocery bill in full
Transaction Description
Cash +
Other Assets =
Liab
Financial Position
Rev –
Exp
Balance Forward
170
140 40
200 85 - 15
Pays Grocery Bill
-40
New Balance
130
Show Slide #48: Demonstration (Additional Transactions)
Facilitator’s Note: Notice that the equation is still in balance after all of the activity.
270
270

49. LSA #3 Check on Learning
Q1. How does borrowing money from the bank to purchase equipment affect the accounting equation? Q2. How does providing services on account affect the accounting equation?
A1. Increases other assets, increases liabilities
Show Slide #49: LSA #3 Check on Learning
Facilitator’s Note: Ask the following Questions; (Facilitate discussion on answers given)
Q1. How does borrowing money from the bank to purchase equipment affect the accounting equation?
A1. Increases other assets, increases liabilities
Q2. How does providing services on account affect the accounting equation?
A2. Increases revenues, increases other assets (IOUs, otherwise known as accounts receivable)
A2. Increases revenues, increases other assets (IOUs, otherwise known as accounts receivable)

50. LSA #3 Summary
During this discussion, we covered the terminology and formulas associated with the “accounting equation” and “financial activity”. We then put in the “scenario information” in the excel spreadsheet for the practical application.
Show Slide #50: LSA #3 Summary
Facilitator’s Note: During this discussion, we covered the terminology and formulas associated with the “accounting equation” and “financial activity”. We then put in the “scenario information” in the excel spreadsheet for the practical application.

51. Practical Exercise
Show Slide #51: Practical Exercise

52. TLO Summary
Action: Demonstrate How Transactions Affect the Accounting Equation
Condition: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy:
Explain accounting terminology
Analyze transactions for effects on the accounting equation
Enter transactions into the accounting equation
Show Slide #52: TLO Summary
Facilitator’s Note: Restate the TLO
Action: Demonstrate How Transactions Affect the Accounting Equation
Conditions: FM Leaders in a classroom environment working as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international students) you must: , Explain accounting terminology, Analyze transactions for effects on the accounting equation, and Enter transactions into the accounting equation
“Or”
Facilitator's at this time, have one learner from each group to explain the most important take away to them from this lesson. Facilitate a discussion on each answer.