TRANSACTIONS THAT AFFECT OWNER’S INVESTMENT, CASH & CREDITChapter 3 Section 2
BUSINESS TRANSACTIONS Economic event that causes a change-either
an increase or a decrease in assets, liabilities or Owner’s Equity
Assets = Liabilities + Owner’s Equity
Examples: Business buys a computer with cash Sell hotdogs for cash
EACH TYPE OF TRANSACTION IS RECORDED IN A SPECIFIC ACCOUNT
ACCOUNTS The type of business will determine how
many accounts will be used Regardless of how many accounts are used—
all will be classified as either: Asset Liability Owner’s Equity
ACCOUNTSAssets Liabilities Owner’s EquityCash in Bank Accounts Payable Maria Sanchez,
CapitalAccounts ReceivableComputer EquipmentOffice EquipmentDelivery Equipment
Which accounts do you not recognize?
STEPS TO ANALYZE TRANSACTIONS 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
BUSINESS TRANSACTION #1 Maria Sanchez took $25,000 from personal
savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
Step 1: Identify the accounts affected Cash in bank Maria Sanchez, Capital
Step 2: Classify the accounts affected Cash in bank—asset Maria Sanchez, Capital—Owner’s Equity
BUSINESS TRANSACTION #1 Maria Sanchez took $25,000 from personal savings
and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service.
Step 3: Determine the amount of increase or decrease for each account affected. Cash in bank--$25,000 increase (+)Maria Sanchez, Capital--$25,000 increase (+)
Step 4: Make sure the accounting equation is in balanceIt remains in balanceAssets Liability Owner’s Equity
Cash in bank Maria Sanchez, Capital
+ $25,000 + $25,000
BUSINESS TRANSACTION #2 The owner, Maria Sanchez, took two
telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment.
Step 1: Identify Office Equipment Maria Sanchez, Capital
Step 2: Classify Office Equipment—Asset Maria Sanchez, Capital—Owner’s Equity
BUSINESS TRANSACTION #2 The owner, Maria Sanchez, took two
telephones valued at $200 each ($400 total) from her home and transferred them to the business as Office Equipment.
Step 3: +/- Office Equipment— $200 increase (+) Maria Sanchez, Capital—$200 increase (+)
Step 4: Balanced?Yes
BUSINESS TRANSACTION #2 Assets Liabilities Owner’s
EquityCash in Bank Office
EquipmentMaria Sanchez, Capital
Prev. Balance
25,000 0 0 25,000
Trans. 2 400 0 400Balance 25,000 400 0 25,400
BUSINESS TRANSACTION #3 Roadrunner issued a $3,000 check to
purchase a computer system. Step 1: Identify
Cash Computer Equipment
Step 2: Classify Cash—asset Computer Equipment Asset
Step 3: +/- Cash—$3,000 decrease (-) Computer Equipment—$3,000 increase (+)
BUSINESS TRANSACTION #3 Roadrunner issued a $3,000 check to
purchase a computer system. Step 4: Balanced?
Assets Liabilities Owner’s Equity
Cash Computer Equip.
Office Equip.
Maria Sanchez, Capital
Prev. Balance
25,000 0 400 25,400
Trans 3 - 3,000 + 3000Balance 22,000 3,000 400 25,400
BUSINESS TRANSACTION #4 Roadrunner bought a used truck on account
from North Shore Auto for $12,000. Step 1: Identify
Delivery equipment Accounts Payable
Step 2: Classify Delivery Equipment—asset Accounts Payable--liability
Step 3: +/- Delivery equipment—$12,000 increase (+) Accounts Payable—$12,000 increase (+)
BUSINESS TRANSACTION #4 Roadrunner bought a used truck on account
from North Shore Auto for $12,000. Balanced?
Assets Liability Owner’s Equity
Cash Computer Equip.
Office Equip
Delivery Equip
Accounts Payable
Owner’s Equity
Prev. Balance
22,000 3,000 400 0 0 25,400
Trans. 4 12,000 12,000Balance 22,000 3,000 400 12,000 12,000 25,400
Assets = Liability + Owner’s Equity?
TRANSACTION #5 Roadrunner sold one telephone to Green
Company for $200 on account. Step 1: Identify
Accounts Receivable Office Equipment
Step 2: Classify Accounts Receivable—asset Office Equipment--asset
Step 3: +/- Accounts Receivable—$200 increase (+) Office Equipment—$200 decrease (-)
TRANSACTION #5 Roadrunner sold one telephone to Green
Company for $200 on account. Step 4: Balanced?
Assets Liab. O.E.
Cash Acct. Rec
Computer Equip
Office Equip
Delivery Equip.
Acct. Pay.
Maria Sanchez, Capital
Prev. Bal.
22,000
0 3,000 400 12,000 12,000 25,400
Trans 5 + 200 - 200
Balance
22,000
200 3,000 200 12,000 12,000 25,400
Does Assets = Liability + Owner’s Equity?
TRANSACTION 6: Roadrunner issued a check for $350 in partial
payment of the amount awed to it’s creditor, North Shore Auto.
Step 1: Identify Cash Accounts payable
Step 2: Classify Cash—asset Accounts Payable-Liability
Step 3: +/- Cash—$350 decrease (-) Accounts payable—$350 decrease (-)
TRANSACTION #6 Roadrunner issued a check for $350 in partial
payment of the amount awed to it’s creditor, North Shore Auto.
Step 4: Balanced?
Assets Liability
O.E.
Cash in bank
Acct. Rec.
Computer equip.
Office equip.
Delivery equip.
Acct. Pay.
M. Sanchez, Capital
Prev. Bal.
22,000 200 3,000 200 12,000 12,000 25,400
Trans 6 -350 -350
Balance 21,650 200 3,000 200 12,000 11,650 25,400
Does Assets = liabilities + Owners Equity?
TRANSACTION #7 Roadrunner received and deposited a check for
$200 from Green Co. The check received is full payment for the telephone sold on account in Transaction #5.
Step 1: Identify Accounts Receivable Cash
Step 2: Classify Accounts Receivable—Asset Cash—Asset
Step 3: +/- Accounts Receivable—$200 decrease (-) Cash– $200 increase (+)
TRANSACTION #7 Step 4: Balanced?
Assets Liab. O.E.
Cash Acct. Rec.
Comp. Equip
Office Equip.
Delivery Equip.
Acct. Pay.
M. Sanchez, Capital
Prev. Bal.
21,650 200 3,000 200 12,000 11,650 25,400
Trans. 7
+ 200 - 200
Balance
21,850 0 3,000 200 12,000 11,650 25,400
Does Assets = Liabilities + Owners Equity?