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Any item of property has at least one

financial claim against it. Accounts
are used to analyze business
transactions. Owners equity is
changed by revenue, expenses, and
withdrawals.

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 Describe the relationship between property and financial claims
Explain the meaning of the term equities as it is used in accounting.
List and define each part of the accounting equation.
Learn how businesses use accounts.
Demonstrate the effects of transactions on the accounting equation.
Check the balance of the accounting equation after a business
transaction has been analyzed and recorded.

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 Section 3.1 Property and
Financial Claims

Key Terms
property assets
financial claim equity
credit owners equity
creditor liabilities

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 Property

Section 3.1 Property and

Financial Claims

Financial information about

property

The purpose of
accounting is to provide:
Financial claim to property

property financial claim

Anything of value that a A legal right to
person or business owns. property.

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 Property

Section 3.1 Property and

Financial Claims

Financial
Property = Claims

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 Property

Section 3.1 Property and

Financial Claims

A creditor lends you money.

The financial claim
is shared.
You buy something on credit.

credit creditor
When you buy something and Any person or business to which
agree to pay for it later. you owe money.

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 Property

Section 3.1 Property and

Financial Claims

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 Financial Claims in
Accounting
Section 3.1 Property and
Financial Claims

Land

assets
Property or items of
Buildings Cash
value owned by a
Assets business.

Manufacturing Office
Equipment Equipment

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 Financial Claims in
Accounting
Section 3.1 Property and
Financial Claims

Owners
Equity
Equity

equity owners equity

The accounting term for the The owners claim to the
financial claim to assets. assets of a business.

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 Financial Claims in
Accounting
Section 3.1 Property and
Financial Claims

The Accounting Equation

liabilities
Amounts owed to creditors; the
claims of creditors to the assets of
a business.

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 Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Key Terms
business transaction
account
accounts receivable
accounts payable
investment
on account

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 Business Transactions
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Buying a sweater or putting cash in

your savings account are examples of
business transactions.

business transaction
An economic event that causes a
changeeither an increase or
decreasein assets, liabilities, and/or
owners equity.

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 Business Transactions
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Accounts receivable

A business records changes

in subdivisions called
accounts.
Accounts payable

account
A subdivision under assets, liabilities, or
owners equity.

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 Business Transactions
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Accounts receivable

A business records changes

in subdivisions called
accounts.
Accounts payable

accounts receivable accounts payable

The total amount of money owed to a The amount owed, or
businessmoney to be received later payable, to the
because of the sale of goods or creditors of a
services on credit. business.

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 Business Transactions
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Steps for Make sure the accounting equation

analyzing a 4 remains in balance.
business
transaction Determine the amount of increase or
3 decrease for each account affected.

2 Classify the accounts affected.

1 Identify the accounts affected.

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 Transactions and the
Accounting Equation
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Analyze a cash investment transaction:

Business Transaction 1

Christa Vargas took $25,000 from personal savings and deposited that amount
to open a business checking account in the name Zip Delivery Service.

See page 58

investment
Money or other property paid out in order to produce a profit.
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 Transactions and the
Accounting Equation
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Business Transaction 2

Christa Vargas transferred two telephones valued at $200 each from her home
to the business.

See page 59
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 Transactions and the
Accounting Equation
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Analyze a cash purchase business transaction:

Business Transaction 3

Zip issued a $3,000 check to purchase a computer system.

See page 59
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 Transactions and the
Accounting Equation
Transaction That Affect Owners
Section 3.2 Investment, Cash, and Credit

Analyze a purchase on account business transaction:

Business Transaction 4

Zip bought a used truck on account from Coast to Coast Auto for $12,000.

See page 60
on account
When a business buys an item on credit.
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 Transaction That Affect
Section 3.3 Revenue, Expense, and
Withdrawals by the Owner

Key Terms
revenue
expense
withdrawal

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 Revenue and Expense
Transactions
Transaction That Affect
Section 3.3 Revenue, Expense, and
Withdrawals by the Owner

Examples of Revenue

Fees earned for services performed

Cash received from the sale of merchandise

revenue
Income earned from the sale of goods
or services.
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 Revenue and Expense
Transactions
Transaction That Affect
Section 3.3 Revenue, Expense, and
Withdrawals by the Owner

Examples of Expenses

Rent

Utilities

Advertising

expense
The cost of products or services used to operate a business.
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 Withdrawals by the Owner
Transaction That Affect
Section 3.3 Revenue, Expense, and
Withdrawals by the Owner

Withdrawals decrease
assets and owners equity.

Investments increase
assets and owners equity.

withdrawal
When the owner takes cash or other assets from the business for personal use.

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 Question 1

ODonnells Car Wash has the following assets and liabilities.

Assets: Cash in Bank $9,500; Accounts Receivable $500; Computer
Equipment $3,500; Car Wash Equipment $75,000; Building $450,000
Liabilities: Altos Equipment Service $2,500;
First National Bank (mortgage on building) $200,000

What is the owners equity for ODonnells?

Calculate total assets.
Step 1
$9,500 + $500 + $3,500 + $75,000 + $450,000 = $538,500

Calculate total liabilities.

Step 2
$2,500 + $200,000 = $205,500

Calculate owners equity.

Step 3 $538,500 - $202,500 = $336,000
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 Question 2

A business owner invests $12,000 cash in the business.

How would you analyze this transaction?
1. Identify the accounts affected.
a. Cash in Bank is affected.
b. Owners Capital is affected.
2. Classify the accounts affected.
a. Cash in Bank is an asset account.
b. Owners Capital is an owners equity account.
3. Determine the amount of increase or decrease for each
account affected.
a. Cash in Bank is increased by $12,000.
b. Owners Capital is increased by $12,000.
4. Make sure the accounting equation remains in balance.
Assets = Liabilities + Owners Equity
Home $12,000 = 0 + $12,000
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