Chapter 3 Business Transactions and the Accounting Equation

Chapter 3 Business Transactions and the Accounting Equation Objectives: üDescribe the relationship between property and financial claims. üExplain the meaning of the term equities as it is used in accounting. üList and define each part of the accounting equation.

Objective cont. . . üDemonstrate the effects of transactions on the accounting equation. üCheck the balance of the accounting equation after a business transaction has been analyzed and recorded. üDefine the accounting terms introduced in this chapter.

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Chapter 3 Worksheets Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit

Problem 3 -1 Balancing the Accounting Equation (T-page 53) ASSETS = LIABILITIES + OWNER’S EQUITY 1 $17, 000 = $ 7, 000 + $10, 000 2 $26, 000 = $ 6, 000 + $20, 000 3 $10, 000 = $ 3, 000 + $ 7, 000 4 $ 26, 000 = $ 9, 000 + $17, 000 5 $8, 000 = $ 2, 000 + $ 6, 000 6 $20, 000 = $ 7, 000 + $13, 000 7 $16, 000 = $12, 000 + $ 4, 000 8 $30, 000 = $ 8, 000 + $22, 000 9 $22, 000 = $ 1, 000 + 10 $25, 000 = $ 5, 000 + $21, 000 $ 20, 000 11 $35, 000 = $10, 000 + $25, 000 12 $7, 500 = $ 4, 500 + $ 3, 000

Problem 3 -2 Determining the Effects of Transactions on the Accounting Equation (T- page 59)

Problem 3 -2 Transaction #1: Jan Swift , owner, deposited $30, 000 in the business checking account. ASSETS Trans # 1 2 Cash in Bank + Accounts Receivable + Computer Equipment + Office Furniture = LIABILITIES = Accounts Payable + OWNER’S EQUITY + Jan Swift, Capital +30, 000 +700 #2: The owner transferred to the business a desk and chair valued at $700. +700

#3: Word. Service issued a check for $4, 000 for the purchase of a computer. ASSETS Trans # 1 Cash in Bank + Accounts Receivable + Computer Equipment 4 Office Furniture LIABILITIES = Accounts Payable +30, 000 +700 - 4, 000 + OWNER’S EQUITY + Jan Swift, Capital +30, 000 2 3 + = +700 + 4, 000 + 5, 000 5 #4: The business bought office furniture on account for $5, 000 from Eastern Furniture.

#5: The desk and chair previously transferred to the business by the owner were sold on account for $700. ASSETS Trans # Cash in Bank 1 +30, 000 + Accounts Receivable + Computer Equipment + LIABILITIES + OWNER’S EQUITY = Accounts Payable + Jan Swift, Capital +30, 000 2 3 Office Furniture = +700 -4, 000 +700 +4, 000 4 +5, 000 +700 5 6 -2, 000 Bal 24, 000 +5, 000 -700 -2, 000 + 700 + 4, 000 + 5, 000 = 3, 000 + 30, 700 #6: Word. Service wrote a check for $2, 000 in partial payment of the amount owed to Eastern Furniture Company.

ASSETS = LIABILITIES + OWNER’S EQUITY ASSETS Trans # Cash in Bank 1 +30, 000 + Accounts Receivable + Computer Equipment + LIABILITIES + OWNER’S EQUITY = Accounts Payable + Jan Swift, Capital +30, 000 2 3 Office Furniture = +700 -4, 000 +700 +4, 000 4 +5, 000 5 +700 6 -2, 000 Bal 24, 000 +5, 000 -700 -2, 000 + 700 33, 700 + 4, 000 + 5, 000 = = 3, 000 + 33, 700 30, 700

Section 3 Transactions That Affect Revenue, Expenses, and Withdrawals by the Owner Property = Financial Claims Equities Liabilities Owner’s Equity Decreases Assets Decreases Owner’s Equity Expenses Increases Assets Increase Owner’s Equity Revenue Assets Cash =

Problem 3 -3 Determining the Effects of Transactions on the Accounting Equation (T- page 63)

Problem 3 -3 Transaction #1: Paid $50 for advertising in the local newspaper. ASSETS Trans # Cash in Bank Bal 24, 000 1 -50 2 + Accounts Receivable 700 + = Computer Equipment 4, 000 + Office Furniture 5, 000 = LIABILITIES Accounts Payable 3, 000 + + OWNER’S EQUITY Jan Swift, Capital 30, 700 -50 +1, 000 -600 4 -800 5 +200 -200 23, 750 500 3 6 Bal 4, 000 5, 000 30, 250

Problem 3 -4 Classifying Accounts 1. John Jones, Capital 2. Cash in Bank Asset 3. Accounts Receivable Asset 4. Accounts Payable Liability 5. Office Equipment Asset 6. Delivery Equipment Asset 7. Camping Equipment Asset 8. Building Asset 9. Land Asset 10. Computer Equipment Asset

Problem 3 -5 Completing the Accounting Equation ASSETS LIABILITIES Cash in Bank 4, 500 Accounts Receivable 1, 350 Office Equipment 5, 000 10, 850 = = Accounts Payable OWNER’S EQUITY 1, 600 + Mike Murray, Capital + 9, 250 $9, 250

Problem 3 -6 Classifying Accounts Within the Accounting Equation ACCOUNT NAME BALANCE (1) ASSETS Cash in Bank 5, 000 Accounts Receivable Camping Equipment Office Equipment 2, 000 12, 000 3, 000 Total (2) LIABILITIES Accounts Payable (3)OWNER’S EQUITY Ronald Hicks, Capital 22, 000 7, 000 Total 15, 000 22, 000

Problem 3 -8 Determining the Effects of Transactions on the Accounting Equation ASSETS Trans # 1 Bal 2 Bal 3 Bal 4 Bal 5 Bal 6 Bal 7 Bal Cash in Bank 10, 000 -1, 000 9, 000 -900 8, 100 Accounts Receivable Office Equipment Grooming Equipment 0 0 0 +6, 000 0 = LIABILITIES + OWNER’S EQUITY = Accounts Payable + Abe Schultz, Capital 0 +1, 000 0 +6, 000 1, 000 0 +700 8, 800 -2, 000 6, 800 10, 000 -900 9, 100 +700 0 6, 000 1, 000 6, 000 -2, 000 4, 000 +500 6, 800 10, 000 500 9, 800 +500 6, 000 1, 000 4, 000 10, 300

Key Terms Owner’s equity Financial claims account credit Business transaction creditors On account y propert assets ts Accoun payable s equitie Accounts receivable liabilities Accounting equation investment