Presentation Transcript

1. Business Transactions and the Accounting Equation

   Chapter 3
2. Property Ownership and Control Property is anything of value that is owned or controlled. Property rights are financial claims to the property. Measured in dollar amounts. When you buy property and agree to pay for it later, you are buying on credit. The business or person selling you the property on credit is called a creditor.
3. Financial Claims in Accounting Assets are property or items of value owned by a business. If you have financial claim to property, you are said to have equity. The owner’s claims to the assets of the business are called owner’s equity. Liabilities are creditor’s claims to the assets of the business.
4. Accounting Equation Assets = Liabilities + Owner’s Equity
5. Business Transactions A business transaction is an economic event that causes a change in assets, liabilities, or owner’s equity. An account shows the balance for a specific item. The total amount of money to be received in the future for goods or services sold on credit is accounts receivable. Accounts payable is the amount of money owed, or payable to the creditors of a business. Capital refers to the dollar value of assets contributed to the business.
6. Revenue and Expense Transactions Revenue is income earned from the sale of goods or services. An expense is the price paid for goods or services used to operate a business. A withdrawal is when an owner takes cash from the business for personal use.