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LESSON 1-3

LESSON 1-3. How Transactions Change Owner’s Equity in an Accounting Equation. Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School. Receiving Cash From Sales.

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LESSON 1-3

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  1. LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

  2. Receiving Cash From Sales • A transaction for the sale of goods or services results in an increase in owners equity. • Revenue – an increase in owners equity resulting from the operation of a business. LESSON 1-3

  3. Sales on Account • Sale on Account – a sale for which cash will be received at a later date. Also called a charge sale. • These accounts are called Accounts Receivableand are assets. • Realization of Revenue - revenue is recorded at the time goods or services are sold. LESSON 1-3

  4. Sales on Account Analyze the transaction: What accounts will the transaction affect? • We have a customer who owes us money so the asset, accounts receivable is increasing. • We made a sale of merchandise which is revenue and increases owners equity. LESSON 1-3

  5. Transaction 6 August 12. Received cash from sales, $295.00. REVENUE TRANSACTIONS page 14 Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. LESSON 1-3

  6. Expense Transactions • Expense – a decrease in owners equity resulting from the operation of a business. • A transaction to pay for goods or services needed to operate a business results in a decrease in owners equity. LESSON 1-3

  7. Expense Transaction Analyze the transaction: What accounts will the transaction affect? • We paid cash so our assets are decreasing. • We incurred an expense which decreases our owners equity account. LESSON 1-3

  8. Transaction 8 August 12. Paid cash for rent, $300.00. EXPENSE TRANSACTIONS page 15 Transaction 9 August 12. Paid cash for telephone bill, $40.00. LESSON 1-3

  9. Transaction 10 August 12. Received cash on account from Oakdale School, $200.00. OTHER CASH TRANSACTIONS page 16 Transaction 11 August 12. Paid cash to owner for personal use, $125.00. LESSON 1-3

  10. TERMS REVIEW page 17 • revenue • sale on account • expense • withdrawals LESSON 1-3

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