1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Activating Strategy Assets=Liabilities + Owner’s Equity What will happen to the accounting equation when we provide a service to our cash customer? 2 LESSON 1-3

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes Revenue Sale of goods or performing a service Causes an increase in owner’s equity Normal business operation Sale on account Charge sale, money will be received later REALIZATION OF REVENUE CONCEPT Recording revenue at the time of the sale 3 LESSON 1-3

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes continued Expense Non-recoverable cost or consumed (used) asset Causes a decrease in owner’s equity Normal business operation Examples: advertising, rent, miscellaneous Withdrawal when an asset is taken out of a business for the owner’s personal use Causes a decrease in owner’s equity Example: withdrawing cash for personal use 4 LESSON 1-3

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes continued Four Items that affect Owner’s Equity Capital –increase Revenue – increase Expense – decrease Drawing - decrease 5 LESSON 1-3

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 1-3 REVENUE TRANSACTIONS Transaction 6 August 12. Received cash from sales, $295.00. Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. page 14

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 1-3 EXPENSE TRANSACTIONS Transaction 8 August 12. Paid cash for rent, $300.00. Transaction 9 August 12. Paid cash for telephone bill, $40.00. page 15

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 1-3 OTHER CASH TRANSACTIONS Transaction 10 August 18. Received cash on account from Oakdale School, $200.00. Transaction 11 August 18. Paid cash to owner for personal use, $125.00. page 16

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 1-3 TERMS REVIEW revenue sale on account expense withdrawals page 17

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes – Read page 18 Explore Accounting GAAP Generally Accepted Accounting Principles Rules or practices used by accountants when recording or reporting financial information SEC Security and Exchange Commission By law have the authority to set the GAAP FASB Financial Accounting Standards Board Organization who actually sets the GAAP 10 LESSON 1-3