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Chapter 3 Business Transactions and the Accounting Equation

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1 Chapter 3 Business Transactions and the Accounting Equation
What You’ll Learn 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. 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. Define the accounting terms introduced in this chapter. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

2 Chapter 3, Section 1 Property and Financial Claims
What Do You Think? Why is it important to keep track of financial claims? Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3 Property and Financial Claims
SECTION 3.1 Main Idea Any item of property has at least one financial claim against it. You Will Learn what it means to own property. the two types of financial claims to property. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4 Property and Financial Claims
SECTION 3.1 Key Terms property financial claim credit creditor assets equities owner’s equity liabilities accounting equation Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

5 Property and Financial Claims
SECTION 3.1 Property Property is anything of value that a person or business owns. A purpose of accounting is to provide: financial information about property. financial claims (legal rights) to property. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

6 PROPERTY = FINANCIAL CLAIMS
Property and Financial Claims SECTION 3.1 Property There is a relationship between property and financial claims that can be expressed as an equation: PROPERTY = FINANCIAL CLAIMS When you buy something and agree to pay for it later, you are buying it on credit, and you share the financial claim with the creditor (the business or person selling you the item on credit). Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

7 Property and Financial Claims
SECTION 3.1 Financial Claims in Accounting A company can possess various property or items of value, known as assets: cash office equipment manufacturing equipment buildings land Equities are financial claims to these assets. When a business obtains a loan to help purchase an item, the owner’s financial claims to the assets are called the owner’s equity. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

8 Property and Financial Claims
SECTION 3.1 Financial Claims in Accounting The creditor’s financial claims to the assets are called liabilities. The relationship between assets, liabilities, and owner’s equity are shown in the accounting equation: Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

9 Property and Financial Claims
SECTION 3.1 Key Terms Review property Anything of value that a business or person owns and therefore controls. financial claim Legal right to an item. credit An agreement to pay for a purchase at a later time; an entry on the right side of an account. creditor A business or person to whom money is owed. assets Property or items of value owned by a business. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

10 Property and Financial Claims
SECTION 3.1 Key Terms Review equities The total financial claims to the assets of a business. owner’s equity The owner’s claims to the assets of the business. liabilities Amounts owed to creditors; the claims of creditors to the assets of a business. accounting equation The accounting relationship between assets and the two types of equities. Assets = Liabilities + Owner’s Equity. Glencoe Accounting Unit 2 Chapter 3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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