1. Business Transactions and the Accounting Equation
Chapter 3 $
Business Transactions and the Accounting Equation $ $ $
Chapter 3 Notes

2. $ $ $ $ Why It’s Important Key Terms Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Why It’s Important
The accounting equation is the basis for keeping all accounting records in balance. $
Key Terms
property
property rights
financial claims
credit
creditor
assets $
investments
equity
owner’s equity
liabilities
accounting equation $

3. $ $ $ $ Property: Ownership and Control Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control
Property is anything of value that is owned or controlled. $ $
Property Financial
Right Claim
Own Yes Yes
Control (like rent) Yes No $

4. Property: Ownership and Control (cont'd.)
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control (cont'd.)
In accounting, property and financial claims are measured in dollar amounts. $ $
Property Financial Claims
(Cost) = (Financial Investments)
Bike = Your Claim to the Bike
$600 = $600 $

5. Property: Ownership and Control (cont'd.)
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Property: Ownership and Control (cont'd.)
When you buy property and agree to pay for it later, you are buying on credit. $ $
Property = Financial Claims
Bike Creditor’s Owner’s
Lock = Financial Claim + Financial Claim
$100 = $40 + $60 $

6. $ $ $ $ Financial Claims in Accounting Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Financial Claims in Accounting
 Assets: Property or items of value owned by a business
 Owner’s Equity: The owner’s claims to the assets of the business
 Liabilities: A creditor’s claims to the assets of the business $ $ $

7. $ $ $ $ The Accounting Equation Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
The Accounting Equation $
Creditor’s Owner’s
Financial Claim Financial Claim
Property = + $ $
Assets = Liabilities + Owner’s Equity

8. $ $ $ $ Important Definitions Chapter 3
Section 1 Property and Financial Claims (cont'd.)
Chapter 3 $
Important Definitions
 Business Transaction: An economic event that causes a change in the accounting equation.
 Accounts Receivable: the total amount of money to be received later because of a sale of goods or services on credit. (selling on account)
 Accounts Payable: the amount of money owed, or payable, to the creditors of a business. (buying on account) $ $ $

9. Chapter 3
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner $ $
What You’ll Learn
How revenue transactions affect the accounting equation.
How expense transactions affect the accounting equation.
How withdrawals by the owner affect the accounting equation. $ $

10. $ $ $ $ Why It’s Important Key Terms Chapter 3
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.)
Chapter 3 $
Why It’s Important
The experience you gain by analyzing revenue, expense, and withdrawal transactions will help you analyze transactions in real-world situations. $ $
Key Terms
revenue
expense
withdrawal $

11. $ $ $ $ Revenue and Expense Transactions Chapter 3
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.)
Chapter 3 $
Revenue and Expense Transactions $
Income earned from the sale of goods or services is revenue.
An expense is the price paid for goods or services used to operate a business. $ $

12. $ $ $ $ Withdrawals by the Owner Chapter 3
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (cont'd.)
Chapter 3 $
Withdrawals by the Owner
If a business earns revenue, the owner will take cash or other assets from the business for personal use. This transaction is called a withdrawal. $ $ $