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LESSON 2-3

LESSON 2-3. Analyzing How Transactions Affect Owner’s Equity Accounts. Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School. Analyzing How Transactions Affect Owner’s Equity Accounts.

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LESSON 2-3

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  1. LESSON 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

  2. Analyzing How Transactions Affect Owner’s Equity Accounts To avoid a large # of entries businesses summarize revenue information separately from the other records in an account called Sales Revenue/(Sales) increase owner’s equity The owner’s capital account has a normal credit balance Because revenue increases owner’s equity, increases in revenue are also recorded as credits.

  3. 2 2 1 1 4 4 3 3 RECEIVED CASH FROM SALES page 38 August 12. Received cash from sales, $295.00. 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-3

  4. 2 2 1 1 4 4 3 3 SOLD SERVICES ON ACCOUNT page 39 August 12. Sold services on account to Oakdale School, $350.00. 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-3

  5. Analyzing How Transactions Affect Owner’s Equity Accounts To avoid a large # of entries for expenses, businesses use separate expense accounts to summarize expense information Expenses decrease owner’s equity The owner’s capital account has a normal credit balance Because expenses decrease owner’s equity, expenses have a normal debit balance Increases in expenses are recorded as debits

  6. 1 2 2 4 3 3 1 4 3 PAID CASH FOR AN EXPENSE page 40 August 12. Paid cash for rent, $300.00. 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-3

  7. 2 1 1 4 4 3 3 RECEIVED CASH ON ACCOUNT page 41 August 12. Received cash on account from Oakdale School, $200.00. 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-3

  8. Analyzing How Transactions Affect Owner’s Equity Accounts Withdrawals decrease owner’s equity Accounting practices account for withdrawals separately from the capital account. They are recorded in account titled Owner Name, drawing Because withdrawals decrease owner’s equity, the withdrawal account has a normal debit balance Increases in withdrawals are recorded as debits

  9. 2 1 4 3 3 1 2 4 3 PAID CASH TO OWNER FOR PERSONAL USE page 42 August 12. Paid cash to owner for personal use, $125.00. 1. Which accounts are affected? 2. How is each account classified? 3. How is each classification changed? 4. How is each amount entered in the accounts? LESSON 2-3

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