1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 1-3 Receiving Cash From Sales A transaction for the sale of goods or services results in an increase in owners equity. Revenue – an increase in owners equity resulting from the operation of a business.

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 1-3 Sales on Account Sale on Account – a sale for which cash will be received at a later date. Also called a charge sale. These accounts are called Accounts Receivable and are assets. Realization of Revenue - revenue is recorded at the time goods or services are sold.

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 1-3 Sales on Account We have a customer who owes us money so the asset, accounts receivable is increasing. We made a sale of merchandise which is revenue and increases owners equity. Analyze the transaction: What accounts will the transaction affect?

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 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

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 1-3 Expense Transactions Expense – a decrease in owners equity resulting from the operation of a business. A transaction to pay for goods or services needed to operate a business results in a decrease in owners equity.

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 1-3 Expense Transaction We paid cash so our assets are decreasing. We incurred an expense which decreases our owners equity account. Analyze the transaction: What accounts will the transaction affect?

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 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

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 1-3 OTHER CASH TRANSACTIONS Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. Transaction 11 August 12. Paid cash to owner for personal use, $125.00. page 16

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 1-3 TERMS REVIEW revenue sale on account expense withdrawals page 17