2. Property and Financial Claims Property is anything of value that is owned or controlled. Financial Claim is the legal right to an item or property. Property Rights is the creditors’ and the owners’ financial claims to property. Property = Property Rights Cost of Property = Financial Claims to Property Credit is when you buy property and agree to pay for it later. Creditor is a person or business that sells property on credit.

3. Financial Claims Example If you buy a car for $ 12,000 and pay cash, then you have the financial claim on that car. Property = Rights Cost of Car = Your Claim to the Car $ 12,000 = Example 1 Example b If you buy a $ 12,000 car and put $ 4,000 down and borrow the $ 8,000 balance from the bank, then the financial claim on the car is shared between you and the bank. Property = Rights Cost of Car = Bank’s Claim + Your Claim $ 12,000 = $ 8,000 + $ 4,000

4. Financial Claims in Accounting Assets are property or items of value owned by a business. Equity is the financial claims to assets. Owner’s Equity is the owner’s financial claims to assets. Liabilities are the creditor’s financial claims to assets. Property = Rights Cost of Asset = Creditor’s Claim + Owner’s Claim Assets LiabilitiesOwner’s Equity Hey, that looks like it might be something important.

5. Basic Accounting Equation Let’s look at that last part one more time. Property = Rights Cost of Asset = Creditor’s Claim + Owner’s Claim AssetsLiabilitiesOwner’s Equity Hey, that’s the Basic Accounting Equation. Assets = Liabilities + Owner’s Equity I’m sure I’ll use that equation a lot.

6. Problem 3 – 1 Textbk: P. 48 & Wkbk: P. 20 Determine the missing dollar amount indicated by the question mark in each equation. Write each missing amount in your working papers. 10,000 26,000 3,000 26,000 6,000 13,000 16,000 8,000 21,000 20,000 35,000 45,000 That was easy Asi de Facil

7. Homework Textbook Page: 65 & 66 Workbook Page: 22 Prob 3-4, Prob 3-5 & Prob 3-6

8. Business Transactions A business transaction is an economic event that causes a change – either increase or decrease – in assets, liabilities, or owner’s equity. An account shows the balance for a specific item. Accounts Receivable is the amount of money owed to a business. Accounts Payable is the amount of money a business owes to it’s creditors.

9. Basic List of Accounts Maria Sanchez started a new business called Roadrunner Delivery Service. Assets = Liabilities + Owner’s Equity Cash in Bank Accounts Receivable Computer Equipment Office Equipment Delivery Equipment Accounts PayableM. Sanchez, Capital Roadrunner Delivery Service Note that assets are always listed in order of liquidity. Investments in the business. Let’s take a look at the list of accounts for her business. That means how quickly they can be converted to cash.

10. Effects of Transactions on the Accounting Equation There are four basic steps to analyzing and recording business transactions. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance 1) Identify the accounts affected. 2) Classify the accounts affected. 3) Determine the amount of increase or decrease for each account affected. 4) Make sure the accounting equation remains in balance.

11. Investments by the Owner Maria Sanchez took $ 25,000 from her personal savings and deposited that amount to open a business account in the name of Roadrunner Delivery Service. Business Transaction 1 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner’s equity account Cash in Bank is increased by $ 25,000 and M. Sanchez, Capital is increased by $ 25,000 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 1 M. Sanchez, Capital 25,000 =+ Balance25,0000 =+ The accounting equation is in balance

12. Additional Investments by the Owner The owner, Maria Sanchez, took two telephones valued at $ 200 each (total $ 400) from her home and transferred them to the business as Office Equipment. Business Transaction 2 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Office Equipment and M. Sanchez, Capital Office Equipment is an asset account and M. Sanchez, Capital is an owner’s equity account Office Equipment is increased by $ 400 and M. Sanchez, Capital is increased by $ 400 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 2 M. Sanchez, Capital 400 =+Prev. Bal.25,0000 =+ The accounting equation is in balance Office Equipment Balance25,000400=0+25,400+

13. Cash Payment Transactions Roadrunner issued a $ 3,000 check to purchase a computer system. Business Transaction 3 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Computer Equipment and Cash in Bank Computer Equipment is an asset account and Cash in Bank is an asset account Computer Equipment is increased by $ 3,000 and Cash in Bank is decreased by $ 3,000 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 3 M. Sanchez, Capital (3,000) =+Prev. Bal.25,000025,400 = The accounting equation is in balance Office Equipment Balance22,0003,000=0+25,400+ Computer Equipment 400 3,000 +400 25,400

14. Buying on Credit Transactions Roadrunner bought a used truck on account from North Shore Auto for $ 12,000. Business Transaction 4 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Delivery Equipment and Accounts Payable Delivery Equipment is an asset account and Accounts Payable is a liability account Delivery Equipment is increased by $ 12,000 and Accounts Payable is increased by $ 12,000 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 4 M. Sanchez, Capital =+Prev. Bal.22,000025,400 = The accounting equation is in balance Office Equipment Balance22,0003,000=12,000+25,400+ Computer Equipment 400 12,000 +400 When a business buys an item on credit, that is referred to as on account. Delivery Equipment 3,000 Accounts Payable 12,000 + 37,400

15. Selling on Credit Transactions Roadrunner sold one telephone to Green Company for $ 200 on account. Business Transaction 5 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Accounts Receivable and Office Equipment Accounts Receivable is an asset account and Office Equipment is an asset account Accounts Receivable is increased by $ 200 and Office Equipment is decreased by $ 200 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 5 M. Sanchez, Capital =+Prev. Bal.22,00012,00025,400 = The accounting equation is in balance Office Equipment Balance22,0003,000=12,000+25,400+ Computer Equipment 400 200 + Business can also sell items on account. Delivery Equipment 3,000 Accounts Payable (200) +12,000 Accounts Receivable 12,000 +200 37,400

16. Credit Payment Transactions Roadrunner issued a check for $ 350 in partial payment of the amount owed to its creditor, North Shore Auto. Business Transaction 6 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and Accounts Payable Cash in Bank is an asset account and Accounts Payable is a liability account Cash in Bank is decreased by $ 350 and Accounts Payable is decreased by $ 350 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 6 M. Sanchez, Capital =+Prev. Bal.22,00012,00025,400 = The accounting equation is in balance Office Equipment Balance21,6503,000=11,650+25,400+ Computer Equipment 200 + Delivery Equipment 3,000 Accounts Payable (350) +12,000 Accounts Receivable 12,000 +200 37,050 200 (350)

17. Credit Receivable Transactions Roadrunner received and deposited a check for $ 200 from Green Company. The check received was full payment for the telephone sold on account in transaction 5. Business Transaction 7 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and Accounts Receivable Cash in Bank is an asset account and Accounts Receivable is an asset account Cash in Bank is increased by $ 200 and Accounts Receivable is decreased by $ 200 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 7 M. Sanchez, Capital =+Prev. Bal.21,65011,65025,400 The accounting equation is in balance Office Equipment Balance21,8503,000=11,650+25,400+ Computer Equipment 200 + Delivery Equipment 3,000 Accounts Payable 200 +12,000 Accounts Receivable 12,000 +0 37,050 200 (200)

18. Homework Textbook Page: 56 Workbook Page: 20 Problem 3-2

19. Revenue Transactions Roadrunner received a check for $ 1,200 from a customer, Sims Corporation, for delivery services. Business Transaction 8 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner’s equity account Cash in Bank is increased by $ 1,200 and M. Sanchez, Capital is increased by $ 1,200 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 8 M. Sanchez, Capital =+Prev. Bal.21,85011,65025,400 The accounting equation is in balance Office Equipment Balance23,0503,000=11,650+26,600+ Computer Equipment 200 + Delivery Equipment 3,000 Accounts Payable 1,200 +12,000 Accounts Receivable 12,000 +0 38,250 0 Income earned from the sale of goods and services is called revenue. Revenue increases Owner’s Equity because it increases the assets of the business. =1,200

20. Expense Transactions Roadrunner wrote a check for $ 700 to pay the rent for the month. Business Transaction 9 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner’s equity account Cash in Bank is decreased by $ 700 and M. Sanchez, Capital is decreased by $ 700 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 9 M. Sanchez, Capital =+Prev. Bal.23, 05011,65026,600 The accounting equation is in balance Office Equipment Balance22,3503,000=11,650+25,900+ Computer Equipment 200 + Delivery Equipment 3,000 Accounts Payable (700) +12,000 Accounts Receivable 12,000 +0 37,550 0 Money paid for goods and services used to operate a business is called expense. Expenses decreases Owner’s Equity because they decrease the assets or increase the liabilities of the business. =(700)

21. Withdrawal Transactions Maria Sanchez withdrew $ 500 from the business for her personal use. Business Transaction 10 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner’s equity account Cash in Bank is decreased by $ 500 and M. Sanchez, Capital is decreased by $ 500 Assets = Liabilities + Owner’s Equity Cash in Bank Trans 10 M. Sanchez, Capital =+Prev. Bal.22,35011,65025,900 The accounting equation is in balance Office Equipment Balance21,8503,000=11,650+25,400+ Computer Equipment 200 + Delivery Equipment 3,000 Accounts Payable (500) +12,000 Accounts Receivable 12,000 +0 37,050 0 Money taken out of a business for the owner’s personal use is called a withdrawal. Withdrawals decreases Owner’s Equity because they decrease the assets of the business. =(500)

22. Summary of Transactions Assets = Liabilities + Owner’s Equity Cash in Bank M. Sanchez, Capital Office Equipment Computer Equipment Delivery Equipment Accounts Payable Accounts Receivable Trans 1 25,000 25,000 Balance 25,000 = 25,000 Trans 2 400 400 Balance 25,000 + 400 = 25,400 Trans 3 (3,000) 3,000 Balance 22,000 + 3,000 + 400 = 25,400 Trans 4 12,000 12,000 Balance 22,000 + 3,000 + 400 + 12,000 = 12,000 25,400 Trans 5 200 (200) Balance 22,000 + 200 + 3,000 + 200 + 12,000 = 12,000 25,400 Trans 6 (350) (350) Balance 21,650 + 200 + 3,000 + 200 + 12,000 = 11,650 25,400 Trans 7 200 (200) Balance 21,850 + 0 + 3,000 + 200 + 12,000 = 11,650 25,400 Trans 8 1,200 1,200 Balance 23,050 + 0 + 3,000 + 200 + 12,000 = 11,650 26,600 Trans 9 (700) (700) Balance 22,350 + 0 + 3,000 + 200 + 12,000 = 11,650 25,900 Trans 10 (500) (500) Balance 21,850 + 0 + 3,000 + 200 + 12,000 = 11,650 25,400 Assets 37,050 = Liabilities = 11,650 + Owner’s Equity 25,400 + 37,050

23. Problem 3 - 9

24. Homework Textbook Page: 67 & 68 Workbook Page: 23 & 24 Problem 3-7 & Problem 3-8

25. Problem 3 – 3 Textbk: P. 60 & Wkbk: P. 21 1)Paid $ 50 for advertising in the local newspaper. 2)Received $ 1,000 as payment for preparing a report. 3)Wrote a $ 600 check for the month’s rent. 4)Jan Swift withdrew $ 800 for her personal use. 5)Received $ 200 on account from the person who had purchased the old office furniture.