chapter 1 Asset Liability Owners Equity Revenue and

chapter 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts College Accounting 11 th Edition © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied

Assets are ____ and other things of value owned and controlled by an _______ or _______. • • • ____________ ______ © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Owner’s Equity • The owner’s right, claim, or financial interest • is expressed by the word ______ in the business. Another term that could be used is ______ © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Owner’s Equity Suppose the total value of the assets is $80, 000 and the business entity does not owe any amount against the assets. What is the owner’s equity? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Creditor An entity’s assets consist of a truck that costs $35, 000. The owner has invested $12, 000, and the business entity has borrowed the remainder from the bank, which is a ____. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Liabilities We have now introduced a new classification, ______, which represents debt. The creditors’ claims to the assets have priority over the claims of the owners. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Fundamental Accounting Equation An equation expressing the relationship of assets, liabilities, and owner’s equity is called the __________________. = + © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Determine Assets Millie Adair has $17, 000 invested in her travel agency, and the agency owes creditors $5, 000; is the amount of that is, the agency. What has liabilities of $5, 000. assets? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Determine Owner’s Equity Larry Roland owns a car repair shop. His business has assets of $40, 000, and it owes creditors $16, 000. What is the amount of owner’s equity? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Determine Liabilities Theo Viero’s insurance agency has assets of $86, 000; his investment (his equity) amounts to $46, 000. What is the amount of the agency’s liabilities? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 1 © 2013 Cengage Learning. All Rights Reserved. May not be scanned,

Recording Business Transactions The ________ of the fundamental accounting equation _____ always equal the __________. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Recording Business Transactions J. Conner establishes her own business and calls it Conner’s Whitewater Adventure is a sole proprietorship, a one-owner business. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (a) - Conner deposited $90, 000 in a bank account in the name of the business. Conner deposits $90, 000 cash in a separate bank account in the name of Conner’s Whitewater Adventures. Treating the business as independent from its owners, creditors, and customers is called the _________ concept. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Four Steps Used to Analyze Transactions 1. 2. 3. 4. What accounts are involved? 1. _______ and J. Conner, What are the classification of 2. _______ is an _______ and the accounts involved? J. Conner, _______ is an _________ account Are the accounts increased 3. Cash is _______ because or decreased? Conner’s Whitewater Adventures has _______ cash now than it had before J. Conner, Capital is _______ because Conner has a _______ investment now than she had before. Is the equation in balance 4. Yes after the transactions have been recorded? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (a) - Conner deposited $90, 000 in a bank account in the name of the business. The account denoted by the owner’s name followed by the word ______ records the amount of the owner’s investment (or ____) in the business. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (b) - Conner bought equipment, paying cash, $38, 000. It is important to note at this point that Conner does not invest any new money. She simply exchanges part of the business’s cash for equipment. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (c) - Company bought equipment on account from Signal Products, $4, 320. • The ________ account shows an • • increase because the business owns $4, 320 more in equipment. The liability account ________ is used for short-term liability or charge accounts. The company to which money is owed, Signal’s Products, is called a ________. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (c) - Company bought equipment on account from Signal Products, $4, 320. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (d) - Company paid Signal Products, a creditor, $2, 000 on account. The amount paid will be applied against the firm’s liability of $42, 320. The asset _____ and the liability _____ are both _____ by $2, 000 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (e) - Owner invested equipment with a fair market value of $5, 200 in the business. Conner invested her own computer equipment in the company. It has a ________ of $5, 200. The _________ is the present worth of an asset. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Summary of Transactions © 2013 Cengage Learning. All Rights Reserved. May not be scanned,

Note: The following observations apply to all types of business transactions: • _______ transaction is recorded as an • _____ and/or _____ in _____ accounts _______ side of the equation is _____ to the _______ side of the equation © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 2 © 2013 Cengage Learning. All Rights Reserved. May not be scanned,

Practice Exercise 2 – Complete the form © 2013 Cengage Learning. All Rights Reserved.

Revenue and Expense Accounts ______ are the amounts ______ by a business. • • _____ earned for performing services _____ from selling merchandise _____ income for the use of property _____ income for lending money Revenues may be in the form of _______ or ____________ _. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Revenue and Expense Accounts ______ are the costs that relate to earning revenue (or the ______________ ). • ______ expense for labor performed • ______ expense for the use of property • ______ expense for the use of money When a business incurs or earns revenue, • If aanbusiness ______ expense for the use of various pays expenses, _______ in ______________ media occurs. _______. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Umbrella of _______ © 2013 Cengage Learning. All Rights Reserved. May not be

The chart of accounts is the official list of accounts tailor-made for the business. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 3 © 2013 Cengage Learning. All Rights Reserved. May not be scanned,

Transaction (f) - Company sold whitewater rafting tours for cash, $8, 000. Conner receives _______ of $8, 000 in return for whitewater rafting tours performed for customers over two weeks. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (g) - Company paid rent for the month, $1, 250. Shortly after opening the business, Conner pays the month’s rent of $1, 250. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (h) - Company bought supplies on credit, $675. Conner’s Whitewater Adventures buys office supplies costing $675 on credit from Fineman Company. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (h) - Company paid for insurance, $1, 875. The company paid for a one-year liability insurance policy. Because it is paid ________ for a period longer than one _____, it has value and is recorded as an _____. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Steps in Analyzing Transactions Recap 1. ____ the ______ to understand what is happening and how it affects the business. 2. Decide on the ______ of the _____ involved. 3. Decide whether the accounts are ______ or ______. 4. After recording the transaction, make sure the __________ is in ______. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Performing Step # 4: © 2013 Cengage Learning. All Rights Reserved. May not be

Transaction (i) - Company receives a bill for an expense, $620. The company receives a bill from the Times for newspaper advertising. _______ is not used because the bill has ______ paid. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (k) - Company sold services on account. • Conner’s Whitewater Adventures signs a contract • with Crystal River Lodge to provide rafting adventures for guest. Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6, 750. The company uses the __________ account to record amounts due from charge customers. __________ is an _____. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (k) - Company sold services on account. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (l) - Company paid ____ on account. Conner’s Whitewater Adventures pays $1, 500 to Signal Products, its _______ as part payment on account. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (m) - Company paid an expense in cash, $225. Conner’s Whitewater Adventures receives a bill from Solar Power, Inc. for $225. This bill has not been previously recorded. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (n) - Company paid creditor on account, $620. Conner’s Whitewater Adventures pays $620 to the Times for advertising. Recall that this bill had been previously recorded as a liability in transaction (j). © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (o) - Company paid an expense in cash. Conner’s Whitewater Adventures pays wages of a part-time employee, $2, 360. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (p) - Company buys equipment on account for $3, 780, making a cash down payment of $1, 850 and charging $1, 930. • Conner’s Whitewater Adventures buys additional • equipment from Signal Products for $3, 780, paying $1, 850 down with the remaining $1, 930 on account. Because buying an item on account is the _____ buying on _______, both terms are used to describe such transactions and involve _________. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (q) - Company buys equipment on account for $3, 780, making a cash down payment of $1, 850 and charging $1, 930. Note that three accounts are involved in this transaction – _______ © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (q) - Company receives cash on account from credit customer, $2, 500. Conner’s Whitewater Adventures receives $2, 500 from Crystal River Lodge to apply against the amount billed in transaction (k). © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (r) - Company sells services for cash, $8, 570. Conner’s Whitewater Adventures receives revenue from cash customers during the rest of the month, $8, 570. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transaction (s) - Owner makes a cash withdrawal, $3, 500. Conner withdraws $3, 500 from the business for personal living costs. A ________ may be considered the _____ of an ______ in cash by the owner. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Practice Exercise 4 © 2013 Cengage Learning. All Rights Reserved. May not be scanned,

chapter 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts College Accounting 11 th Edition © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The End 1– 54