LESSON 1-3
How Transactions Change
Owner’s Equity in an
Accounting Equation
Analyze transactions.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
2
Competency: Understanding the
Accounting Cycle for a Service Business
Objectives:
34 Describe the purpose of accounting
and the role it plays in the global
economy.
35 Demonstrate the effects of
transactions on the accounting
equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
3
Chapter 1 Objectives
 Define accounting terms related to starting a service
business organized as a proprietorship and to changes
that affect the accounting equation.
 Identify accounting concepts and practices related to
starting a service business organized as a proprietorship
and to changes that affect the accounting equation.
 Classify accounts as assets, liabilities, or owner’s equity
and demonstrate their relationships in the accounting
equation.
 Analyze how transactions affect accounts in an accounting
equation.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
4
 Revenue – an increase in owner’s equity resulting
from the operation of a business (transaction for the
sale of goods or services).
 Sale on account – a sale for which cash will be
received at a later date (a charge sale).
 Expense – a decrease in owner’s equity resulting
from the operation of a business (paying for goods or
services needed to operate a business).
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
5
Types of Transactions
 Received Cash from Sales
 Selling a product and receiving cash (cash, check,
debit/credit card).
 Sold Services on Account
 Selling a product with the customer promising to pay later.
 Paid Cash for Rent
 Owner paying cash (cash, check, debit/credit card) for
renting business space.
 Paid Cash for Telephone Bill
 Owner paying cash (cash, check, debit/credit card) today for
telephone service received.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
6
Types of Transactions
 Received Cash on Account
 Owner receiving cash (cash, check, debit/credit card) for a
previously purchased item.
 Paid Cash to Owner for Personal Use
 Owner paying him/herself for personal use.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
7
REVENUE TRANSACTIONS
page 14
Transaction 6 August 12. Received cash from sales, $295.00.
Transaction 7 August 12. Sold services on account to Oakdale
School, $350.00.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
8
EXPENSE TRANSACTIONS
page 15
Transaction 8 August 12. Paid cash for rent, $300.00.
Transaction 9 August 12. Paid cash for telephone bill, $40.00.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
9
OTHER CASH TRANSACTIONS
page 16
Transaction 10 August 18. Received cash on account from
Oakdale School, $200.00.
Transaction 11 August 18. Paid cash to owner for personal use,
$125.00.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
10
DEFINE TERMS REVIEW
page 17
In your Chapter 1Terms Word Document, resave and drop a copy
in my Inbox!




revenue
sale on account
expense
withdrawals
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
11
Exit Ticket for Chapter 1-3
In a Word Document, SaveAS: Chapter1-3AYUYourName
Drop a copy in my InBox today before you leave!
1. How is owner’s equity affected when cash is
received from sales?
2. How is owner’s equity affected when services are
sold on account?
3. How is owner’s equity affected when cash is paid for
expenses?
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3
12
Chapter 1-3 Assignments
Complete on Aplia
 Work Together 1-3
 On Your Own 1-3
 Application Problem 1-3
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning
LESSON 1-3