Property is anything of value that is owned or controlled. Financial Claim is the legal right to an item or property.

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1 Property and Financial Claims Property is anything of value that is owned or controlled. Financial Claim is the legal right to an item or property. Property Rights is the creditors and the owners financial claims to property. Credit is when you buy property and agree to pay for it later. Creditor is a person or business that sells property on credit. Property = Property Rights Cost of Property = Financial Claims to Property

2 Financial Claims Example Example 1 If you buy a car for $ 12,000 and pay cash, then you have the financial claim on that car. Property = Property Rights Cost of Car = Your Claim to the Car $ 12,000 = $ 12,000 Example b If you buy a $ 12,000 car and put $ 4,000 down and borrow the $ 8,000 balance from the bank, then the financial claim on the car is shared between you and the bank. Property = Property Rights Cost of Car = Bank s Claim Your Claim $ 12,000 = $ 8,000 $ 4,000

3 Financial Claims in Accounting Assets are property or items of value owned by a business. Equity is the financial claims to assets. Owner s Equity is the owner s financial claims to assets. Liabilities are the creditor s financial claims to assets. Property = Property Rights Cost of Asset = Creditor s Claim Owner s Claim Assets Liabilities Owner s Equity Hey, that looks like it might be something important.

4 Basic Accounting Equation Let s look at that last part one more time. Property = Property Rights Cost of Asset = Creditor s Claim Owner s Claim Assets Liabilities Owner s Equity I m sure I ll use that equation a lot. Hey, that s the Basic Accounting Equation. Assets = Liabilities Owner s Equity

5 Problem 3 1 Textbk: P. 49 & Wkbk: P. 28 Determine the missing dollar amount indicated by the question mark in each equation. Write each missing amount in your working papers. Owner's Assets = Liabilities Equity That was easy 1 17,000 = 7,000 10, ,000 = 6,000 20, ,000 = 3,000 7, ,000 = 9,000 17, ,000 = 2,000 6, ,000 = 7,000 13, ,000 = 12,000 4, ,000 = 8,000 22, ,000 = 1,000 21, ,000 = 5,000 20, ,000 = 10,000 25, ,500 = 45,000 3,000 Asi de Facil

6 Homework Textbook Page: 65 & 66 Workbook Page: 37 Prob 34, Prob 35 & Prob 36

7 Business Transactions A business transaction is an economic event that causes a change either increase or decrease in assets, liabilities, or owner s equity. An account shows the balance for a specific item. Accounts Receivable is the amount of money owed to a business. Accounts Payable is the amount of money a business owes to it s creditors.

8 Basic List of Accounts Maria Sanchez started a new business called Roadrunner Delivery Service. Let s take a look at the list of accounts for her business. Assets = Liabilities Owner s Equity Cash in Bank Accounts Receivable Computer Equipment Office Equipment Delivery Equipment Note that assets are always listed in order of liquidity. Accounts Payable M. Sanchez, Capital Investments in the business. That means how quickly they can be converted to cash.

9 Effects of Transactions on the Accounting Equation There are four basic steps to analyzing and recording business transactions. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance 1) Identify the accounts affected. 2) Classify the accounts affected. 3) Determine the amount of increase or decrease for each account affected. 4) Make sure the accounting equation remains in balance.

10 Investments by the Owner Business Transaction 1 Maria Sanchez took $ 25,000 from her personal savings and deposited that amount to open a business account in the name of Roadrunner Delivery Service. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner s equity account Cash in Bank is increased by $ 25,000 and M. Sanchez, Capital is increased by $ 25,000 The accounting equation is in balance Trans 1 Assets = Liabilities Owner s Equity Cash M. Sanchez, in Bank Capital 25,000 = 25,000 Balance 25,000 = 0 25,000

11 Additional Investments by the Owner Business Transaction 2 The owner, Maria Sanchez, took two telephones valued at $ 200 each (total $ 400) from her home and transferred them to the business as Office Equipment. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Office Equipment and M. Sanchez, Capital Office Equipment is an asset account and M. Sanchez, Capital is an owner s equity account Office Equipment is increased by $ 400 and M. Sanchez, Capital is increased by $ 400 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash in Bank Office Equipment M. Sanchez, Capital Prev. Bal. 25,000 = 0 25,000 Trans = 400 Balance 25, = 0 25,400 25,400 25,400

12 Cash Payment Transactions Business Transaction 3 Roadrunner issued a $ 3,000 check to purchase a computer system. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Computer Equipment and Cash in Bank Computer Equipment is an asset account and Cash in Bank is an asset account Computer Equipment is increased by $ 3,000 and Cash in Bank is decreased by $ 3,000 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash in Bank Computer Equipment Office Equipment M. Sanchez, Capital Prev. Bal. 25, = 0 25,400 Trans 3 (3,000) 3,000 = Balance 22,000 3, = 0 25,400 25,400 25,400

13 Homework Textbook Page: 69 Workbook Page: 41 Problem 311

14 Summary of Transactions Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Trans 1 25,000 25,000 Balance 25,000 = 25,000 Trans Balance 25, = 25,400 Trans 3 (3,000) 3,000 Balance 22,000 3, = 25,400

15 Buying on Credit Transactions When a business buys an item on credit, that is referred to as on account. Business Transaction 4 Roadrunner bought a used truck on account from North Shore Auto for $ 12,000. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Delivery Equipment and Accounts Payable Delivery Equipment is an asset account and Accounts Payable is a liability account Delivery Equipment is increased by $ 12,000 and Accounts Payable is increased by $ 12,000 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash in Bank Computer Equipment Office Equipment Delivery Equipment Accounts Payable M. Sanchez, Capital Prev. Bal. 22,000 3, = 0 25,400 Trans 4 12,000 = 12,000 Balance 22,000 3, ,000 = 12,000 25,400 37,400 37,400

16 Selling on Credit Transactions Business can also sell items on account. Business Transaction 5 Roadrunner sold one telephone to Green Company for $ 200 on account. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Accounts Receivable and Office Equipment Accounts Receivable is an asset account and Office Equipment is an asset account Accounts Receivable is increased by $ 200 and Office Equipment is decreased by $ 200 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 22,000 3, ,000 = 12,000 25,400 Trans (200) = Balance 22, , ,000 = 12,000 25,400 37,400 37,400

17 Credit Payment Transactions Business Transaction 6 Roadrunner issued a check for $ 350 in partial payment of the amount owed to its creditor, North Shore Auto. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and Accounts Payable Cash in Bank is an asset account and Accounts Payable is a liability account Cash in Bank is decreased by $ 350 and Accounts Payable is decreased by $ 350 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 22, , ,000 = 12,000 25,400 Trans 6 (350) = (350) Balance 21, , ,000 = 11,650 25,400 37,050 37,050

18 Credit Receivable Transactions Business Transaction 7 Roadrunner received and deposited a check for $ 200 from Green Company. The check received was full payment for the telephone sold on account in transaction 5. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and Accounts Receivable Cash in Bank is an asset account and Accounts Receivable is an asset account Cash in Bank is increased by $ 200 and Accounts Receivable is decreased by $ 200 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 21, , ,000 = 11,650 25,400 Trans (200) Balance 21, , ,000 = 11,650 25,400 37,050 37,050

19 Homework Textbook Page: 56 Workbook Page: 28 Problem 32

20 Summary of Transactions Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Trans 1 25,000 25,000 Balance 25,000 = 25,000 Trans Balance 25, = 25,400 Trans 3 (3,000) 3,000 Balance 22,000 3, = 25,400 Trans 4 12,000 12,000 Balance 22,000 3, ,000 = 12,000 25,400 Trans (200) Balance 22, , ,000 = 12,000 25,400 Trans 6 (350) (350) Balance 21, , ,000 = 11,650 25,400 Trans (200) Balance 21, , ,000 = 11,650 25,400

21 Revenue Transactions Income earned from the sale of goods and services is called revenue. Revenue increases Owner s Equity because it increases the assets of the business. Business Transaction 8 Roadrunner received a check for $ 1,200 from a customer, Sims Corporation, for delivery services. 1) Identify 2) Classify 3) Increase or Decrease 4) Balance Accounts affected are Cash in Bank and M. Sanchez, Capital Cash in Bank is an asset account and M. Sanchez, Capital is an owner s equity account Cash in Bank is increased by $ 1,200 and M. Sanchez, Capital is increased by $ 1,200 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 21, , ,000 = 11,650 25,400 Trans 8 1,200 = 1,200 Balance 23, , ,000 = 11,650 26,600 38,250 38,250

22 Expense Transactions Money paid for goods and services used to operate a business is called expense. Expenses decreases Owner s Equity because they decrease the assets or increase the liabilities of the business. Business Transaction 9 Roadrunner wrote a check for $ 700 to pay the rent for the month. 1) Identify Accounts affected are Cash in Bank and M. Sanchez, Capital 2) Classify 3) Increase or Decrease 4) Balance Cash in Bank is an asset account and M. Sanchez, Capital is an owner s equity account Cash in Bank is decreased by $ 700 and M. Sanchez, Capital is decreased by $ 700 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 23, , ,000 = 11,650 26,600 Trans 9 (700) = (700) Balance 22, , ,000 = 11,650 25,900 37,550 37,550

23 Withdrawal Transactions Money taken out of a business for the owner s personal use is called a withdrawal. Withdrawals decreases Owner s Equity because they decrease the assets of the business. Business Transaction 10 Maria Sanchez withdrew $ 500 from the business for her personal use. 1) Identify Accounts affected are Cash in Bank and M. Sanchez, Capital 2) Classify 3) Increase or Decrease 4) Balance Cash in Bank is an asset account and M. Sanchez, Capital is an owner s equity account Cash in Bank is decreased by $ 500 and M. Sanchez, Capital is decreased by $ 500 The accounting equation is in balance Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Prev. Bal. 22, , ,000 = 11,650 25,900 Trans 10 (500) = (500) Balance 21, , ,000 = 11,650 25,400 37,050 37,050

24 Summary of Transactions Assets = Liabilities Owner s Equity Cash Accounts Computer Office Delivery Accounts M. Sanchez, in Bank Receivable Equipment Equipment Equipment Payable Capital Trans 1 25,000 25,000 Balance 25,000 = 25,000 Trans Balance 25, = 25,400 Trans 3 (3,000) 3,000 Balance 22,000 3, = 25,400 Trans 4 12,000 12,000 Balance 22,000 3, ,000 = 12,000 25,400 Trans (200) Balance 22, , ,000 = 12,000 25,400 Trans 6 (350) (350) Balance 21, , ,000 = 11,650 25,400 Trans (200) Balance 21, , ,000 = 11,650 25,400 Trans 8 1,200 1,200 Balance 23, , ,000 = 11,650 26,600 Trans 9 (700) (700) Balance 22, , ,000 = 11,650 25,900 Trans 10 (500) (500) Balance 21, , ,000 = 11,650 25,400 Assets 37,050 = Liabilities Owner s Equity = 11,650 25,400 37,050

25 Classwork Textbook Page: 68 Workbook Page: 40 Problem 39

26 Classwork Prob 3 9 Assets Cash in Accounts Hiking Bank Receivable Equipment 1 60,000 Bal 60,000 2 (3,000) Bal 57,000 3 (3,000) Bal 54,000 4 (24,000) Bal 30,000 5 Bal 30, ,500 Bal 32,500 7 Bal 32,500 8 (3,000) Bal 29,500 9 (1,500) Bal 28, Bal 28,000 1,200 1,200 Tktbk P. 68 Wkbk P. 40 Rafting Equipment = Liabilities Owner's Equity Accounts Juanita Ortega Office Equipment = = Payable Capital 60,000 60,000 = (3,000) 57,000 3,000 3,000 = 57,000 24,000 24,000 = 57,000 4,000 4,000 = 4,000 4,000 57,000 2,500 59, ,950 3,000 3,000 3,000 3,000 3,000 3,000 3,000 24,000 24,000 24,000 24,000 24,000 24,000 4, ,450 4,450 4,450 4,450 = = 4,000 4,000 = 4,000 (3,000) 56,950 = (1,500) 2,500 56,950 1,200 58,150 = 2,500

27 Homework Textbook Page: 66 & 67 Workbook Page: 38 & 39 Problem 37 & Problem 38

28 Problem 3 3 Textbk: P. 60 & Wkbk: P. 29 1) Paid $ 50 for advertising in the local newspaper. 2) Received $ 1,000 as payment for preparing a report. 3) Wrote a $ 600 check for the month s rent. 4) Jan Swift withdrew $ 800 for her personal use. 5) Received $ 200 on account from the person who had purchased the old office furniture. Assets Owner's = Liabilities Equity Cash in Accounts Computer Office Accounts Jan Swift Bank Receivable Equipment Furniture = Payable Capital Bal 24, ,000 5,000 = 3,000 30,700 1 (50) = (50) 2 1,000 = 1,000 3 (600) = (600) 4 (800) = (800) (200) = Bal 23,750 = 500 4,000 5,000 3,000 30,250