CHAPTER 4 • PLANNING GUIDE
U
N
I
T
2
CHAPTER
CHAPTER
CHAPTER
CHAPTER
CHAPTER
THE BASIC
ACCOUNTING CYCLE
3
BUSINESS TRANSACTIONS AND THE
ACCOUNTING EQUATION
4
TRANSACTIONS THAT AFFECT
ASSETS, LIABILITIES, AND
OWNER’S CAPITAL
Section 1 Accounts and the Double Entry Accounting System
Section 2 Applying the Rules of Debit and Credit
5
TRANSACTIONS THAT AFFECT
REVENUE, EXPENSES,
AND WITHDRAWALS
Section 1 Relationship of Revenue, Expenses, and Withdrawals to
Owner’s Equity
Section 2 Applying the Rules of Debit and Credit to Revenue, Expense,
and Withdrawals Transactions
RECORDING TRANSACTIONS IN A
GENERAL JOURNAL
Section 1 The Accounting Cycle
Section 2 Recording Transactions in a General Journal
POSTING JOURNAL ENTRIES TO
GENERAL LEDGER ACCOUNTS
Section 1 The General Ledger
Section 2 The Posting Process
Section 3 Preparing a Trial Balance
6
7
MINI PRACTICE SET 1:
CHAPTER
CHAPTER
CHAPTER
CHAPTER
48A
Chapter 4
Section 1 Property and Financial Claims
Section 2 Transactions That Affect Owner’s Investment, Cash, and Credit
Section 3 Transactions That Affect Revenue, Expense, and Withdrawals
by the Owner
TechVision Web Design
THE SIX-COLUMN WORK SHEET
Section 1 Preparing the Work Sheet
Section 2 Completing the Work Sheet
FINANCIAL STATEMENTS FOR A
SOLE PROPRIETORSHIP
Section 1 The Income Statement
Section 2 The Statement of Changes in Owner’s Equity
Section 3 The Balance Sheet and the Statement of Cash Flows
10
COMPLETING THE ACCOUNTING
CYCLE FOR A SOLE
PROPRIETORSHIP
Section 1 Preparing Closing Entries
Section 2 Posting Closing Entries and Preparing a Post-Closing Trial Balance
11
CASH CONTROL AND
BANKING ACTIVITIES
Section 1 Banking Procedures
Section 2 Reconciling the Bank Statement
8
9
UNIT COURSE MANAGER
Academic Rigor
READING GUIDE
The Essential Question, chapter
objectives, and Main Idea are
previewed here.
ACADEMIC STANDARDS
Academic Standards are integrated
into each chapter.
Academic Vocabulary
Academic Vocabulary throughout the
text helps students learn words that
they will see in their reading and on
tests.
Review and Assessment
Reading comprehension, Content and
Academic Vocabulary, and academic
integration activities provide
opportunities to assess skills and
apply content to academic situations.
PROBLEMS
End-of-section and end-ofchapter problems give students
the opportunity to complete
comprehensive problems that
integrate the accounting skills they
have learned so far.
Real-World Connections
REAL WORLD
Accounting Careers
Real accountants give information
and advice about their experiences
working in the accounting field.
REAL WORLD
Applications & Connections
These exercises give students practice
completing activities that connect
accounting to the real world of
business.
• Case Study
• Career Wise
• A Matter of Ethics
• HOT Audit
• 21st Century Skills
• Spotlight on Personal Finance
• Global Accounting
Unit Resources
FOCUS ON THE PHOTO
The units begin with a photo and a
caption that asks students a question
designed to help them start thinking
about what they will read.
Keys to Success
These unit-opener features encourage
students to think about the kinds of
skills that will help them excel in the
workplace.
MINI PRACTICE SETS
These problems give students practice
in applying the accounting concepts
they have learned over multiple
chapters.
Common Mistakes
Accuracy is key in accounting
and this feature provides examples
of the most common types of
accounting mistakes.
Connect to History
This feature describes important
milestones in the history of
accounting and business finance.
Chapter 4
48B
INTRODUCING UNIT 2
FOCUS
Look Back
In Unit 1 students learned about
career research and planning and the
opportunities available for trained
accountants. Students also learned about
the three types of business operations,
the three forms of business organization,
and three basic assumptions underlying
an accounting system.
U
N
I
T
2
THE BASIC
ACCOUNTING CYCLE
Look Ahead
In Unit 2 students will use this
background knowledge as they learn
how to analyze transactions and prepare
financial records for a business.
Chapter 3: Business Transactions and the
Accounting Equation
Chapter 4: Transactions That Affect Assets,
Liabilities, and Owner’s Capital
Chapter 5: Transactions That Affect
Revenue, Expenses, and Withdrawals
Chapter 6: Recording Transactions in a
General Journal
TEACH
Unit Launch Activity
Have each student name two industries
that are distinctly different from each
other. Ask students to speculate about the
specific knowledge an accountant would
need for each industry.
Trends in Accounting
Beginning students might have a limited view of what skills they should develop in order to prepare
for a career in accounting. In today’s workplace, they will need more than accounting and math
skills. According to the Web site careers-in-accounting.com, the scope of skills required for success
in the field is becoming much broader. Skills now considered to be important include the following:
people skills, sales skills, communication skills, analytical skills, ability to synthesize, creative ability,
initiative, and computer skills. Students need to prepare themselves to meet the demands of this
expanding view of an accountant’s job.
48
Unit 2
INTRODUCING UNIT 2
<<< A LOOK BACK
Unit 1 decribed different types
of accounting careers and
the three forms of business
organization.
Reading Read and comprehend complex literary and
informational texts independently and proficiently.
A LOOK AHEAD >>>
In Unit 2, you will analyze
transactions and prepare
financial records for a business.
College and
Career Readiness
Common Core State Standards
Keys to Success
Q
A
Why are effective reading skills important for
an accounting career?
You may not think reading skills are important to
an accountant who spends a lot of time crunching
numbers and detailing costs. But without
effective reading skills, an accountant would not
be able to analyze important financial documents,
make important financial recommendations, or
stay up-to-date on current events and changes in
laws that affect the accounting field. Whether you
plan to go to a two- or four-year college or find a
job after graduation, effective reading skills are
among your most important keys to success.
English Language Arts
Reading Keeping up with current events will
help you stay competitive in the workplace.
Read two financial news articles online or in
a newspaper or magazine. Compare the two
texts in a one-page paper. What companies
are involved? Are they sole proprietorships,
parnerships, or corporations? How can you tell?
Collaborate with Others The boys
in the photo are working together to solve
a problem or accomplish a task. Students
need to know how to work collaboratively
in order to find success in school and
work. Divide students into groups and
ask them to choose one of the companies
in the chart to research. Have groups
present their research orally, making sure
that every member contributes some
information about the company.
FOCUS ON THE PHOTO
Possible answer: buying product, selling
product, counting change, balancing the
cash register, buying supplies, paying
employees
glencoe.com
FOCUS ON THE PHOTO
The accounting cycle translates economic events into
useful information. What economic events can you
think of that might occur in a bicycle shop like this one?
glencoe.com
m
English Language Arts As a
follow-up activity, help students make
a 3-column table listing the companies
they found in the appropriate columns:
sole proprietorships, partnerships, and
corporations. Ask students what they
learned from the assignment and the
follow-up activity.
For teaching suggestions and sample
answers, go to glencoe.com and click
on Teacher Center.
ASSESS/CLOSE
Get podcasts, videos, and accounting
forms.
fo
49
Tell students to write questions about the
term accounting cycle and to look for
answers as they read the unit.
Differentiated Instruction
Mathematical Learning
Have students use online search
engines to find Web sites that
convert dollars to euros. OL
Linguistic Learning
Have students write a short article
discussing the reasons for the
growing popularity of bicycling
in the U.S. and the business
opportunities it creates. OL
Spatial Learning
Have students create a collage
about a U.S. professional league
or team, incorporating basic
statistics such as revenues and
attendance. AL
Unit 2
49
CHAPTER 3 • PLANNING GUIDE
PACING YOUR LESSONS
P
Chapter Introduction
Section 1
Section 2
Section 3
Chapter Assessment
1 period
1 period
2 periods
2 periods
1 period
*This pacing guide is based on a traditional 36-week course. See pp. TM38–TM39 for complete pacing guide information.
SECTION RESOURCES
Section
SECTION 3.1 PROPERTY AND FINANCIAL
CLAIMS
Any item of property has at least one
financial claim against it.
SECTION 3.2 TRANSACTIONS THAT AFFECT
INVESTMENT, CASH, AND CREDIT
Accounts are used to analyze business
transactions.
SECTION 3.3 TRANSACTIONS THAT AFFECT
REVENUE, EXPENSE, AND WITHDRAWALS
BY THE OWNERS
Owner’s equity is changed by revenue,
expenses, investments, and withdrawals.
50A
Chapter 3
College & Career Readiness
Professional Development
Reading Strategy, p. 53
Critical Thinking, pp. 53, 54, 55
Math Skill Practice, pp. 54, 55
Extended Skill Practice, p. 54
Critical Thinking, pp. 57, 58, 60, 61
Differentiated Instruction, pp. 57, 58
Reading Strategy, pp. 58, 59, 60, 61
Math Skill Practice, p. 59
Writing Support, p. 60
Extended Skill Practice, pp. 58, 59
Connect to History, p. 61
Critical Thinking, pp. 63, 64, 65
Reading Strategy, p. 64
Writing Support, p. 65
Differentiated Instruction, pp. 17, 18
English Language Learners, p. 17
Teacher to Teacher, p. 64
Extending the Content, p. 65
Career Wise, p. 76
21st Century Skills, p. 76
A Matter of Ethics, p. 77, 27
Spotlight on Personal Finance, p. 77
H.O.T Audit, p. 77
STANDARDS AND SKILLS • CHAPTER 3
PROFESSIONAL
DEVELOPMENT
Targeted professional development is correlated throughout Glencoe Accounting.
The McGraw-Hill Professional Development Mini Clip Video Library provides
teaching strategies to strengthen academic and learning skills. Log on to glencoe.com.
In this Chapter, you will find these Mini Clips:
• Reading: Building Vocabulary, p. 54
• Mathematics: Communication in Mathematics, p. 58
• ELL: Strategies for English Language Learners, p. 61
• Math: Solving Equations, p. 64
STANDARDS-BASED LESSON PLAN
National Standards for Business Education
Standards
I.C.3 Demonstrate ethical decision-making skills and conduct in a business scenario
II.A.9 Identify and explain the classifications within assets, liabilities, and equity
IV.G.1 Distinguish between revenue and gains
V.A.2 Describe the purpose of journals and ledgers and their relationship
*See pp. TM33–TM35 for detailed NBEA standards and correlations.
21st Century Skills Correlations
Resources:
Allocating Time
Allocating Money
Allocating Material
and Facility Resources
Allocating Human
Resources
Information:
Acquiring and
Evaluating
Information
Organizing and
Maintaining
Information
Interpreting and
Communicating
Information
Using Computers to
Process Information
Interpersonal Skills:
Participating as a
Member of a Team
Teaching Others
Serving Clients/
Customers
Exercising Leadership
Systems:
Understanding
Systems
Monitoring
and Correcting
Performance
Improving and
Designing Systems
Technology:
Selecting Technology
Applying Technology
to Task
Maintaining
and Troubleshooting
Technology
Negotiating to Arrive
at a Decision
Working With Cultural
Diversity
*Highlighted blocks indicate areas covered in the chapter. Additional skills are also covered throughout the Teacher Edition.
Chapter 3
50B
INTRODUCING CHAPTER 3
CORRELATIONS TO NATIONAL STANDARDS
FOR BUSINESS EDUCATION
See p. TM33 for a detailed correlation
chart.
Standards: I.B.1, I.C.3, I.C.4, II.A.9, IV.B.11,
IV.D.3, IV.G.1, IV.G.2, IV.G.3, V.A.3, VI.A.2
FOCUS
REAL-WORLD
Business Connection
Al h h iit iis a very new company, Hulu
Although
H l
has already expanded and diversified.
It began by offering shows online; now
users can watch shows on their TVs as
well, and can use apps to watch them on
smartphones and other personal devices.
Hulu is also planning to offer its service in
areas outside North America, beginning
with countries in the EU.
CHAPTER
3
BUSINESS
TRANSACTIONS
AND THE
ACCOUNTING
EQUATION
REAL-WORLD Business Connection
Hulu
Have you ever missed a crucial episode of your
favorite TV show? Have you ever sat at the library with
nothing to do? Then Hulu might be a site you want to
check out. Hulu lets you watch television shows, clips,
and movies online—anytime. You can also use Hulu
to embed video on your blog or Web page, or just
email a clip to your friends. Since Hulu was founded
in 2007, it has become hugely successful. Within
its first year of operation, it was one of the top five
online video sites in the United States.
Connect to the Business
Hulu employs about 150 people, which is a much
smaller staff than companies that generate similar
revenues, and so is able to keep its payroll costs to a
minimum. Lower operating cost is a big advantage in
business because it helps increase profitability.
Analyze
How do technology companies like Hulu use technology
to keep their operating costs down?
FOCUS ON THE PHOTO
Analyze Possible answer: Businesses
such as Hulu use technology to develop
and provide goods and services,
including customer support. This use
of technology reduces the need for
employees and for the space to house
employees, which reduces the business’s
operating costs.
FOCUS ON THE PHOTO
Visual Literacy
Answers will vary. A business that
relies heavily on technology would
have desktop and laptop computers,
servers, monitors, WiFi equipment,
televisions, MP3 players, office furniture,
telecommunications equipment, white
boards, and more. Ask: What kinds of
debts or liabilities might this business
have? Answers will vary. Any technology
and office equipment can be financed
and, therefore, become a debt. In
addition, if the company is purchasing
its building or office space, there would
be mortgage debt. The company might
also owe money to vendors such as
advertising companies.
50
Chapter 3
Hulu’s main assets are virtual in the world of
streaming video, but producing its “product” requires
technological equipment and real space in which
staff develops Hulu’s innovative media distribution.
What types of assets would a business like Hulu have?
BIG IDEA
To understand the financial
condition of any business,
you must first understand the
accounting equation.
BIG
IDEA
glencoe.com
Get podcasts, videos, and
accounting forms.
Understanding the accounting equation, which defines assets as
liabilities plus owner’s equity, is essential to evaluating the financial
condition of a business. Ask students to share their own ideas about
the importance of this equation. How would ignoring one part of the
equation affect an understanding of a business’s financial condition?
INTRODUCING CHAPTER 3
TEACH
Previewing the
Main Ideas
Use these questions and activities at the
beginning of the sections to focus on the
Main Ideas.
SECTION 3.1 PROPERTY AND
FINANCIAL CLAIMS
Ask: What types of items are owned?
land, houses, machines, supplies, pets
Ask: Is the owner the only person
who has a legal claim to the item? Not
necessarily; if the owner borrowed to
buy the item, the lender also has a legal
claim. All property has one or more legal
claims against it.
SECTION 3.2 TRANSACTIONS THAT
AFFECT OWNER’S INVESTMENT, CASH,
AND CREDIT
Ask: What types of classification systems
are you familiar with? Answers may
include classification systems learned in
biology, chemistry, or geography. Tell
students that accounting has its own
classification system.
SECTION 3.3 TRANSACTIONS THAT
AFFECT REVENUE, EXPENSE, AND
WITHDRAWALS BY THE OWNER
Ask: What events would change the
financial condition of a business? money
earned from sales of goods and services;
money spent for running the business;
money that the owner puts in or takes
out of the business All these changes are
reflected in the records of the business.
51
Glencoe Technology Solutions
glencoe.com
The interactive student text and working papers can
be found on McGraw-Hill Connect.
Online Learning Center
Get activity and game ideas, reproducible forms,
and links to additional accounting resources.
Chapter 3
51
INTRODUCING CHAPTER 3
CHAPTER 3
STANDA
READING GUIDE
FOCUS
READING GUIDE
Before You Read
Before You Read
ACADEMIC
The Essential Question Why is understanding the accounting
equation crucial to understanding the condition of any business?
The Essential Question The essential
question encourages students to inquire
about the underlying purpose of
accounting. Use the essential question
as a discussion starter, emphasizing to
students that there are no right or wrong
answers.
English Language Arts
Main Idea
Any item of property has at least one financial claim against it.
Accounts are used to analyze business transactions. Owner's equity is
changed by revenue, expenses, and withdrawals.
Chapter Objectives
Main Idea
Concepts
Have students read the Main Idea in Before
You Read. Ask: Why is it important to keep
track of financial claims? Answers should
express concepts of determining legal rights
to property. Point out that one reason is to
assess the condition of a business.
C1 Describe
A1 Learn how
the relationship
between property
and financial claims.
(p. 53)
businesses use
accounts. (p. 57)
C2 Explain the
meaning of the term
equities as it is used
in accounting.
(p. 55)
Chapter Objectives
Have students review the objectives to
set expectations for what they’ll learn in
Chapter 3.
Analysis
A2 Demonstrate
the effects of
transactions on the
accounting equation.
(p. 58)
Procedures
P1 Check the
balance of the
accounting equation
after a business
transaction has
been analyzed and
recorded. (p. 58)
NCTE 7 Conduct research
and gather, evaluate,
and synthesize data to
communicate discoveries.
(p. 68)
Mathematics
NCTM Number and
Operation Compute
fluently and make
reasonable estimates.
(p. 68)
NCTE National Council of
Teachers of English
NCTM National Council of
Teachers of Mathematics
1. CCR stand text
Common Core
2. CCR stand text
Writing Develop and
strengthen writing as needed
by planning, revising, editing,
rewriting, or trying a new
approach.
C3 List and define
each part of the
accounting equation.
(p. 57)
Academic Standards
RDS
Help students see cross-curricular
connections whenever possible.
College and Career Readiness
standards emphasize skills and
concepts students will need beyond
high school.
Connect to the
Reading Guide
Use the following questions to help
students connect to the reading.
1. What does the chapter title tell you?
Predict
2. What do you already know about this
subject from personal experience?
Activate Prior Knowledge
3. What have you learned about
this in the earlier chapters? Make
Connections
4. What gaps exist in your knowledge of
this subject? Set a Purpose for Reading
52
Chapter 3
52
Chapter 3 Business Transactions and the Accounting Equation
CHAPTER 3 RESOURCES MANAGER
Print
• Chapter Study Guides and Working Papers pp. 19–32
• Fast File Chapter 3 Resources
Digital Transparencies
(TeacherWorks Plus)
• Section 1: Transparency 3-1
• Section 2: Transparencies 3-2–
3-10
• Section 3: 3-11–3-14
Technology
• Presentation Plus!
• TeacherWorks Plus
• Peachtree Accounting Software
and Applications
• Using QuickBooks® with
Glencoe Accounting
Online
• McGraw-Hill Connect
• Glencoe Accounting Online
Learning Center
SECTION 3.1
SECTION 3.1
PROPERTY AND FINANCIAL CLAIMS
In Chapter 2 you learned that accounting is the language of business.
In this chapter you will learn how to apply basic accounting concepts and
terminology. You will also learn how the accounting equation expresses the
relationship between property and the rights, or claims, to the property.
United Parcel Service (UPS), a corporation that provides global delivery services, uses accounting reports to communicate with its managers,
employees, and investors. The UPS financial reports identify the property
used in the business, such as airplanes, trucks, and computers. The reports
also show how the company obtained the property, either from loans or
from funds provided by investors.
Property
What Is Property?
R
C
The right to own property is basic to a free enterprise system.
Property is anything of value that a person or business owns and therefore
controls. When you own an item of property, you have a legal right to that
item. For example, suppose you paid $600 for a mountain bike. As a result of
the payment, you own the bike. If you had rented the bike for the weekend
instead of buying it, you would pay a much smaller amount of money, but
you would have the bike for only a limited time. You would have the right
to use the bike for the weekend, but you would not own it.
Businesses also own property. One of the purposes of accounting is
to provide financial information about property and financial claims to
that property. A financial claim is a legal right to property. In accounting, property and financial claims are measured in dollar amounts. Dollar
amounts measure both the cost of the property and the financial claims to
the property. In our mountain bike example, since you paid $600 cash to
buy the bike, you have ownership and a financial claim of $600 to the bike.
This relationship between property and financial claims is shown in the
following equation.
Property (Cost)
Financial Claims
Bike
Your Claim to the Bike
$600
$600
FOCUS
SECTION VOCABULARY
Content Vocabulary
•
•
•
•
•
•
•
•
•
property
financial claim
credit
creditor
assets
equities
owner’s equity
liabilities
accounting equation
Academic Vocabulary
• funds
• acquire
Bell Ringer
• Making Observations: Ask
students to consider their own
property. What items of property are
they wearing, such as watches or
jewelry, sweatshirts, or shoes? Have
students determine what rights they
have in their property. Then have
them name items of property in
which other people might have rights
(e.g., vehicles, bicycles, DVD players,
computers).
• Digital Transparency 3-1 focuses
students’ attention on the topics
covered in Section 3.1.
TEACH
glencoe.com
• Show Me tutorials
• Let Me Try interactive
activities.
R Reading Strategy
Activating Prior Knowledge In
the text, the term financial claim is used,
defining a claim as a right. Ask: What
forms of claim have you experienced?
Answers will vary but may include
vehicle, personal computer, DVD, or
gaming equipment. OL
C Critical Thinking
Activating Prior Knowledge
Ask: What do you know about
equations? An equation has equal
amounts on either side of an equals
sign. BL
When you buy property with cash, you acquire all of the financial
claims to that property at the time of purchase. What happens to the financial
claim, however, when you don’t pay for the property right away?
When you buy something and agree to pay for it later, you are buying
on credit. The business or person selling the item on credit is called a
creditor. A creditor can be any person or business to which you owe money.
Section 3.1 Property and Financial Claims
53
PRETEACHING SECTION VOCABULARY
Content Vocabulary
Write each content vocabulary term
on a separate sheet of paper. Hand
the papers to nine different students,
and ask each student to write a
definition of the term on that paper.
Have those students pass their papers
to other students, and instruct them
to revise, rewrite, or confirm the first
definition. Repeat at least once more.
Then have the next students refer to
the Glossary and write the complete,
correct definition. Read the results
aloud, and respond to any questions
students may have.
Academic Vocabulary
Have students work with partners
to brainstorm lists of synonyms for
each academic vocabulary word.
See which pair can create the most
complete list within a given time limit,
such as two minutes.
Chapter 3
53
SECTION 3.1
When you buy property on credit, you do not have the only financial claim
to the property. You share the financial claim to that property with your
creditor. For example, suppose you want to buy a $100 lock for the mountain
bike, but you have only $60. You pay the store $60 and sign an agreement to
C1 pay the remaining $40 over the next two months. Since you owe the store
(the creditor) $40, you share the financial claim to the lock with the creditor.
The creditor’s financial claim to the lock is $40 and your claim is $60. The
combined claims equal the cost of the property. Your purchase of the lock
can be expressed as an equation:
TEACH
C1 Critical Thinking
Connecting to Financial Literacy
Ask: Why is it dangerous to make
only minimum payments on credit
card balances? Interest and fees will
increase your liability to the credit card
company. OL
PROPERTY FINANCIAL CLAIMS
M
Property
Bike Lock
Creditor’s Financial Claim Owner’s Financial Claim
$100
M Math Skill Practice
Financial Claims
$40
$60
As you can see, two (or more) people can have financial claims to the
same property.
Only the property owner has control of the property. For example, suppose that you buy a used vehicle for $8,000. You pay $1,200 in cash and take
out a loan from the credit union for the remaining $6,800.
Thinking Algebraically Have
students look at the bike lock example.
Ask: Suppose you pay the creditor
another $10. What would be the amount
of the owner’s financial claim? $70 OL
Property
C2
C2 Critical Thinking
Drawing Conclusions Point out that
accounting records show the historical
cost of property. Ask: If you buy a vehicle
for $12,500 and you make a $3,300 down
payment in cash, what is the property
value? $12,500 AL
Financial Claims
Vehicle
Creditor’s Financial Claim Owner’s Financial Claim
$8,000
$6,800
$1,200
As the owner, you have control of the vehicle. However, if you don’t
make the payments to the credit union, the credit union can exercise its
legal claim to the vehicle and you will lose ownership.
Reading Check
Recall When you buy an item on credit, with
whom do you share a financial claim?
Extended Skill Practice
Assessing Financial Claims
Use Demonstration Problem
3-1 in Chapter 3 Fast File for
step-by-step practice calculating the
relationship between property and
financial claims. The problem also
appears on TeacherWorks Plus.
Financial Claims in Accounting
What Are the Two Types of Equities?
Property or items of value owned by a business are referred to as assets.
Businesses can have various types of assets, such as:
•
•
•
•
•
cash
office equipment
manufacturing equipment
buildings
land
PROFESSIONAL
DEVELOPMENT
Reading: Building Vocabulary A
classroom teacher demonstrates and
plays two vocabulary-building games
with students.
54
Chapter 3
54
Chapter 3 Business Transactions and the Accounting Equation
SECTION 3.1
The accounting term for the financial claims to these assets is
equities. Let’s explore the meaning of the term equities by introducing
Crista Vargas and her new business, Zip Delivery Service, organized as a sole
proprietorship.
Suppose Zip Delivery Service purchases a delivery truck for $10,000.
Zip makes a cash down payment of $3,000 to the seller. A local bank loans Zip
the remaining $7,000. Both Zip and the bank now have financial claims to
the truck.
M
Property
Truck
$10,000
Creditor’s Financial Claim Owner’s Financial Claim
TEACH
M Math Skill Practice
Calculating Balances Have students
calculate the differences between the first
and second financial claim equations.
Ask: How did the owner’s financial claim
increase from $3,000 to $6,500? When
the creditor’s financial claim was
decreased by $3,500 after Zip’s partial
loan payment, the owner’s financial claim
increased by the same amount ($3,000 $3,500 $6,500). AL
Financial Claims
$7,000
$3,000
Over the years as Zip repays the loan, its financial claim will increase.
As less money is owed, the financial claim of the creditor (the bank) will
decrease.
For example, after Zip pays one-half of the loan ($7,000 ½ $3,500),
the financial claims to the property will change as follows:
C1 Critical Thinking
Property
Truck
$10,000
Creditor’s Financial Claim Owner’s Financial Claim
Financial Claims
$3,500
Making Inferences Ask: Why does
the accounting equation show liabilities
before owner’s equity? Creditors have
first claim to the assets of a business. OL
$6,500
When the loan is completely repaid, the creditor’s financial claim will
be canceled. In other words, the owner’s financial claim will then equal the
cost of the truck.
In accounting there are separate terms for owner’s claims and creditor’s
claims. The owner’s claims to the assets of the business are called owner’s
equity. Owner’s equity is measured by the dollar amount of the owner’s
claims to the total assets of the business.
The creditor’s claims to the assets of the business are called liabilities.
Liabilities are the debts of a business. They are measured by the amount of
money owed by a business to its creditors. The relationship between assets
and the two types of equities (liabilities and owner’s equity) is shown in the
accounting equation:
C2 Critical Thinking
Drawing Conclusions Ask: Which
of the three parts of the accounting
equation is actually the result of the other
two parts? Owner’s equity, because it is
the amount “left over” after subtracting
liabilities from assets. Ask: Then why is
the accounting equation not expressed
as Owner’s Equity Assets Liabilities?
The financial claims to assets are listed
together on one side of the accounting
equation. AL
ASSETS LIABILITIES OWNER’S EQUITY
C1
Property
Creditor’s Financial Claim Owner’s Financial Claim
Extended Skill Practice
C2
Assets
Liabilities
Sharing Financial
Claims with a Creditor Use
Demonstration Problem 3-2 in
Chapter 3 Fast File for step-by-step
practice using the equation PROPERTY FINANCIAL CLAIMS. The problem also
appears on TeacherWorks Plus.
Owner’s Equity
Section 3.1 Property and Financial Claims
55
Chapter 3
55
SECTION 3.1 • ASSESSMENT
SECTION 3.1
ASSESS
After You Read
SECTION 3.1 ASSESSMENT RESOURCES
Use these resources to assess mastery of
section content.
• Chapter Study Guides and Working
Papers (Problem 3-1)
• Presentation Plus! CD
Reinforce the
Main Idea
Liabilities
Owner’s Equity
Use a diagram like this one
to describe the financial
claims of creditors and
owners.
A
Assets
glencoe.com
SECTION 3.1 ASSESSMENT ANSWERS
Reinforce the Main Idea
Answers will vary, but should convey
the concept that liabilities are creditor’s
financial claims, assets are property or
items of value and owner’s equity is the
owner’s financial claim.
Math for Accounting
1. .5
5. .875
2. .2
6. .7
3. .3333
7.
4. .8
8.
9.
10.
889
1000
6
10
11.
12.
375
1000
25
100
667
1000
75
100
PROBLEM 3–1
1.
2.
3.
4.
5.
6.
$10,000
$26,000
$3,000
$26,000
$6,000
$13,000
7.
8.
9.
10.
11.
12.
$16,000
$8,000
$21,000
$20,000
$35,000
$4,500
CLOSE
Synthesizing Write the following on
the chalkboard:
vehicle
$16,000
vehicle loan
$12,000
computer system $ 2,000
Have students use these amounts
to write the accounting equation.
$18,000 $12,000 $6,000
56
Chapter 3
Math for
Accounting
Owner’s equity can be
expressed as a fraction
of the total equities. It
can also be expressed
as a decimal. Consider
the following example:
Assets Liabilities Owner’s
Equity
$10,000 $9,000 $1,000
Owner’s equity is equal
to 1/10, or 10 percent,
of the total equities:
Owner’s Equity Total Equities
$1,000 $10,000
1/10
0.10
Convert the following
fractions into decimals.
1
1
1
2. __
1. __
3. __
5
3
2
7
7
4
5. __
6. ___
4. __
5
8
10
PROBLEM 3–1 Balancing the
Accounting Equation
INSTRUCTIONS Determine the missing dollar amount indicated by the
question mark in each equation. Write each missing amount in your
working papers.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
ASSETS
LIABILITIES
OWNER’S EQUITY
$17,000
?
$10,000
?
$ 8,000
$20,000
?
$30,000
$22,000
$25,000
?
$ 7,500
$ 7,000
$ 6,000
?
$ 9,000
$ 2,000
$ 7,000
$12,000
?
$ 1,000
$ 5,000
$10,000
?
?
$20,000
$ 7,000
$17,000
?
?
$ 4,000
$22,000
?
?
$25,000
$ 3,000
Convert the following
decimals into fractions.
7. 0.889
8. 0.60
9. 0.375
10. 0.25
11. 0.667
12. 0.75
56
Chapter 3 Business Transactions and the Accounting Equation
SECTION 33.11
QUIZ
Online Learning Center: Click
on Student Center. Click on
Self-Assessment Quizzes and
select Chapter 3.
1. What is the definition of property? anything of value that a person or business owns and
therefore controls
2. What are assets? property owned by a business
3. What terms are used to describe the two types of financial claims to assets? liabilities and
owner’s equity
4. What is the difference between the two types of financial claims? Liabilities are the
creditors’ claims; owner’s equity represents the owner’s claims.
5. What is the accounting equation? Assets Liabilities Owner’s Equity
SECTION 3.2
SECTION 3.2
TRANSACTIONS THAT AFFECT OWNER’S
INVESTMENT, CASH, AND CREDIT
When you purchase a new sweater, buy popcorn at the movies, or put
cash in your savings account, you are participating in business transactions.
Business transactions involve the purchase, sale, or exchange of goods and
services.
Business Transactions
How Are Accounts Used?
C
A business transaction is an economic event that causes a change—
either an increase or a decrease—in assets, liabilities, or owner’s equity. The
change is reflected in the accounting system of the business.
When a business buys a computer with cash, its cash decreases, but its
computer equipment increases. It records increases and decreases caused
by business transactions in specific accounts. An account is a subdivision
under assets, liabilities, or owner’s equity. It shows the balance for a specific
item and is a record of the increases or decreases for that item. Accounts
represent things in the real world, such as money invested in a business or
owed to a creditor. An account for office furniture represents the dollar cost
of all office furniture the business owns.
Every business sets up its accounts and its accounting system to meet
its needs. The number of accounts needed varies. Some businesses use only
a few accounts, but others use hundreds. No matter how many accounts a
business has, all of its accounts may be classified as either assets, liabilities,
or owner’s equity. Zip Delivery Service uses these accounts:
Assets
Cash in Bank
Accounts Receivable
Computer Equipment
Office Equipment
Delivery Equipment
Liabilities
Accounts Payable
FOCUS
Bell Ringer
SECTION VOCABULARY
Content Vocabulary
•
•
•
•
•
•
business transaction
account
accounts receivable
accounts payable
investment
on account
Academic Vocabulary
• eventually
• transfer
• Critical Thinking: Ask students
to describe some things they
might purchase. Write several of
their examples on the board, and
identify them as either cash or credit
purchases. Then write Assets Liabilities Owner’s Equity on the
board. Ask volunteers to list their
“purchases” under the appropriate
terms in the accounting equation.
• Digital Transparency 3-2 focuses
students’ attention on the topics
covered in Section 3.2.
TEACH
glencoe.com
C Critical Thinking
• Show Me tutorials
• Let Me Try interactive
activities.
Owner’s Equity
Crista Vargas, Capital
Applying Prior Knowledge
Ask: When have you used a step-bystep method to complete a problem
or activity? solving a math problem,
researching and writing a report,
installing software OL
erentiated
D Diff
Instruction
Verbal-Linguistic Learning Ask:
What part of speech is “receivable” and
what are some of its definitions? It is an
adjective; definitions: capable of being
received or accepted; requiring payment;
due or collectible. OL
The second asset account listed is Accounts Receivable. Accounts
D receivable is the total amount of money owed to a business—money to
be received later because of the sale of goods or services on credit. The
Accounts Receivable account is an asset because it represents a claim to
the assets of other people or businesses. It represents a future value that
eventually will bring cash into the business. When the business receives
payment, it cancels the claim.
Section 3.2 Transactions That Affect Owner’s Investment, Cash, and Credit
57
PRETEACHING SECTION VOCABULARY
Content Vocabulary
After reviewing the definition of all
the content vocabulary words, ask
students these questions:
How are the terms account, accounts
receivable, accounts payable, and
on account related? What are the
differences between the meanings of
these terms?
What are some examples of a
business transaction and of an
investment?
Academic Vocabulary
Ask students to choose the best synonym for each academic vocabulary word:
1. eventually
a. quickly
b. finally
c. evidently
d. profitably
finally
2. transfer
a. translate b. repeat
c. increase
d. move
move
Chapter 3
57
SECTION 3.2
R
TEACH
Transactions and the Accounting
Equation
R Reading Strategy
Understanding the Author’s
Style Ask: Why is Accounts Payable
capitalized and bolded in the first
sentence? It is the name of an account.
Point out to students that accounts
payable in the second sentence refers
to a concept (money owed) and not an
actual account. Remind students that key
terms are highlighted and bolded when
they first appear. AL
How Do Transactions Affect the Accounting Equation?
When a business transaction occurs, an accounting clerk analyzes the
transaction to see how it affects each part of the accounting equation.
Analyzing business transactions is simple. Use the following steps.
B u s i n e s s Tr a n s a c t i o n
ANALYSIS
C
Identify
Classify
ⴙ/ⴚ
Balance
C Critical Thinking
Investments by the Owner
An investment is money or other property paid out in order to
produce profit. Owner Crista Vargas made two investments in her business,
Zip Delivery Service. The first was a cash investment; the second was a
transfer of property.
erentiated
D Diff
Instruction
B u s i n e s s Tr a n s a c t i o n 1
Crista Vargas took $25,000 from personal savings and deposited that amount to open a business checking
account in the name of Zip Delivery Service.
ANALYSIS
ⴙ/ⴚ
D
Balance
Classifying Accounts Use
Demonstration Problem 3-4 in Chapter
3 Fast File for step-by-step practice
identifying accounts as assets, liabilities,
or owner’s equity. The problem also
appears on TeacherWorks Plus.
58
Chapter 3
1. Cash transactions are recorded in the account Cash in Bank. Crista
Vargas is investing personal funds in the business. Her investment in
the business is recorded in the account called Crista Vargas, Capital.
2. Cash in Bank is an asset account. Crista Vargas, Capital is an owner’s
equity account.
3. Cash in Bank is increased by $25,000. Crista Vargas, Capital is
increased by $25,000.
4. The accounting equation remains in balance.
Assets
Liabilities Cash in Bank
Trans. 1
58
Mathematics: Communication in
Mathematics Bea Moore-Harris
explains the importance of student
communication in the mathematics
classroom.
Identify
Classify
Extended Skill Practice
PROFESSIONAL
DEVELOPMENT
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.
Most businesses have the following types of transactions: investments
by the owner, cash transactions, credit transactions, revenue and expense
transactions, and withdrawals by the owner.
Categorizing Refer students to the
Business Transaction model (Digital
Transparency 3-3). What does it mean to
“classify accounts”? to determine whether
they are assets, liabilities, or owner’s
equity OL
Visual-Spatial Learning Refer
students to Business Transaction 1
(Digital Transparency 3-4), and call
their attention to the / symbol. Ask:
What does this symbol represent? the
process of determining the increase
or the decrease to each account in the
transaction OL
The liability account is Accounts Payable. Accounts payable is the
amount owed, or payable, to the creditors of a business. The owner’s equity
account title is the owner’s name, a comma, and then the word Capital.
$25,000 Owner’s Equity
Crista Vargas, Capital
0
Chapter 3 Business Transactions and the Accounting Equation
$25,000
SECTION 3.2
B u s i n e s s Tr a n s a c t i o n 2
Crista Vargas transferred two telephones valued at $200 each from her home to the business.
ANALYSIS
R1
R2
TEACH
1. Crista Vargas gave two telephones to the business. This affects the
account Office Equipment. The investment of these assets affects the
account Crista Vargas, Capital.
2. Office Equipment is an asset account. Crista Vargas, Capital is an
owner’s equity account.
3. Office Equipment is increased by $400. Crista Vargas, Capital is
increased by $400.
4. The accounting equation remains in balance.
Identify
Classify
ⴙ/ⴚ
Balance
R1 Reading Strategy
Activating Prior Knowledge Refer
students to Business Transaction 2
(Digital Transparency 3-5) and have
them review the meaning of investment
on p. 55. Ask: Why are telephones
considered an investment? The phones will
be used in operating the business, and the
business is intended to produce profit. OL
Liabilities Owner’s Equity
Assets
Cash
in Bank
Office
Equipment
Prev. Bal.
Trans. 2
$25,000
0
$400
Balance
$25,000 Crista Vargas,
Capital
0
$400
0
$25,000
400
R2 Reading Strategy
$25,400
Using Reference Materials Ask:
How do you know to use an account called
Office Equipment instead of Telephone
Equipment? by referring to the list of
accounts used by this business (p. 54) OL
Cash Payment Transactions
Transaction 3 is the cash purchase of an asset. Any asset purchased for
cash is recorded this way, but the account name of the asset purchased
may vary. Transaction 3 affects only the assets side of the equation. Zip
exchanged one asset (cash) for another asset (computer equipment).
M Math Skill Practice
Thinking Algebraically Refer
students to Transaction 3 (Digital
Transparency 3-6). Ask: How would
owner’s equity change if Zip bought the
computer on account instead of for cash?
Owner’s equity would not change. AL
B u s i n e s s Tr a n s a c t i o n 3
Zip issued a $3,000 check to purchase a computer system.
ANALYSIS
Identify
1. Transactions involving any type of computer equipment are recorded
in the Computer Equipment account. The business paid cash for the
computer system, so the account Cash in Bank is affected. Check
payments are treated as cash payments and are recorded in Cash in
Bank.
2. Computer Equipment and Cash in Bank are both asset accounts.
3. Computer Equipment is increased by $3,000. Cash in Bank is
decreased by $3,000.
4. The accounting equation remains in balance.
Classify
ⴙ/ⴚ
M
Balance
Applying the Accounting Equation
Use Demonstration Problem 3-3
in Chapter 3 Fast File for step-bystep practice using the accounting
equation. The problem also appears on
TeacherWorks Plus.
Liabilities Owner’s Equity
Assets
Cash
in Bank
Computer
Equipment
Office
Equipment
Prev. Bal.
Trans. 3
$25,000
3,000
0
$3,000
$400
Balance
$22,000 $3,000
Extended Skill Practice
$400
Crista Vargas,
Capital
0
0
$25,400
$25,400
Section 3.2 Transactions That Affect Owner’s Investment, Cash, and Credit
59
Classifying Accounts Rounding whole
numbers and decimals is common in
recording business transactions. The
Math Review in Chapter 3 Fast File has
a reproducible master titled “Rounding
Whole Numbers and Decimals.” You can
also find this reproducible master on
TeacherWorks Plus.
CHAPTER 3 ENRICHMENT RESOURCES
glencoe.com
Online Learning Center
• Info Trek
• Show Me
• Let Me Try
• Interactive Glossary (English and Spanish)
•
•
•
•
•
Connect to Careers
Extend—A Matter of Ethics
Personal Finance Online
Self-Assessment Section Quizzes
Self-Assessment Chapter Quiz
Fast File Chapter 3 Resources
• Concept Assessment
• Chapter Quiz
• Chapter Test
Presentation Plus!
PowerPoint® Presentations
Chapter 3
59
SECTION 3.2
Credit Transactions
Now that you have learned about cash transactions, let’s look at how
the use of credit affects the accounting equation. When a business buys an
C item on credit, it is buying on account. In the next four transactions, you
will learn about a purchase on account, a sale on account, a payment made
on account, and a payment received on account.
TEACH
C Critical Thinking
Making Inferences Have students
review the definition of account on
p. 54. Ask: Why do you think buying on
credit is called buying on account? An
account shows activity and a balance.
Relate this to a credit card account
statement. AL
B u s i n e s s Tr a n s a c t i o n 4
R
Zip bought a used truck on account from Coast to Coast Auto for $12,000.
ANALYSIS
Classify
ⴙ/ⴚ
R Reading Strategy
Balance
Predicting Refer students to Business
Transaction 4 (Digital Transparency
3-7). Have students cover everything
except the first sentence with a piece
of paper. Ask: Which accounts will be
affected by the transaction? Delivery
Equipment and Accounts Payable Refer
students to the list of accounts on p. 54 as
needed. OL
Liabilities Owner’s Equity
Assets
Cash
in Bank
Prev. Bal. $22,000
Trans. 4
Balance
W Writing Support
Writing Clearly Refer students
to Business Transaction 5 (Digital
Transparency 3-8). Ask: Why would
Zip agree to be paid in the future for the
telephone? Responses might include: Zip
got the best price from this particular
buyer and had confidence the buyer
would pay the debt. AL
1. Zip purchased a truck to be used as a delivery vehicle, so the account
Delivery Equipment is affected. The business promised to pay for the
truck at a later time. The promise to pay is a liability; therefore, the
Accounts Payable account is affected.
2. Delivery Equipment is an asset account. Accounts Payable is a liability
account.
3. Delivery Equipment is increased by $12,000. Accounts Payable is also
increased by $12,000.
4. The accounting equation remains in balance.
Identify
$22,000 Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
$3,000
$400
0
$12,000
0
$12,000
$25,400
$3,000
$400
$12,000 $12,000 $25,400
B u s i n e s s Tr a n s a c t i o n 5
Zip sold one telephone to Green Company for $200 on account.
ANALYSIS
Identify
W
Classify
ⴙ/ⴚ
Balance
1. Since Zip has agreed to receive payment for the telephone at a later
time, the Accounts Receivable account is affected. The business sold
the telephone, so the account Office Equipment is also affected.
2. Both Accounts Receivable and Office Equipment are asset accounts.
3. Accounts Receivable is increased by $200. Office Equipment is
decreased by $200.
4. The accounting equation remains in balance.
Extended Skill Practice
Determining Effects of Transactions
on the Accounting Equation Use
Demonstration Problem 3-5 in Chapter
3 Fast File for step-by-step practice using
the accounting equation. The problem
also appears on TeacherWorks Plus.
Cash
in Bank
Prev. Bal. $22,000
Trans. 5
Balance
60
60
Chapter 3
Liabilities Owner’s Equity
Assets
$22,000 Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
0
$200
$3,000
$400
200
$12,000
$200
$12,000 $200 $3,000
Chapter 3 Business Transactions and the Accounting Equation
Accounts
Payable
Crista Vargas,
Capital
$12,000
$25,400
$12,000 $25,400
SECTION 3.2
B u s i n e s s Tr a n s a c t i o n 6
Zip issued a check for $350 in partial payment of the amount owed to its creditor, Coast to Coast Auto.
ANALYSIS
Classify
ⴙ/ⴚ
Balance
C1 Prev. Bal. $22,000
Trans. 6
Balance
Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
$200
$3,000
$200
$12,000
$12,000
350
$25,400
$200
$12,000 $11,650 $25,400
350
$21,650 $200
$3,000
C1 Critical Thinking
Drawing Conclusions Refer
students to Business Transaction 6
(Digital Transparency 3-9). Ask: Zip
paid $350 toward the truck loan; why
does the Delivery Equipment account still
have a $12,000 balance? The payment
reduces a liability and is, therefore,
subtracted from the liability balance, not
the asset balance. OL
Liabilities Owner’s Equity
Assets
Cash
in Bank
TEACH
1. The payment decreased the total amount owed to the creditor, so
Accounts Payable is affected. Payment was made by check, so the
account Cash in Bank is affected.
2. Accounts Payable is a liability account. Cash in Bank is an asset
account.
3. Accounts Payable is decreased by $350. Cash in Bank is also
decreased by $350.
4. The accounting equation remains in balance.
Identify
C2 Critical Thinking
B u s i n e s s Tr a n s a c t i o n 7
Zip 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.
ANALYSIS
1. The check decreases the amount owed to Zip, so Accounts Receivable
is affected. A check is given in payment, so Cash in Bank is affected.
2. Accounts Receivable and Cash in Bank are asset accounts.
3. Accounts Receivable is decreased by $200. Cash in Bank is increased
by $200.
4. The accounting equation remains in balance.
Identify
C2
Classify
ⴙ/ⴚ
Balance
Liabilities Owner’s Equity
Assets
R
Cash
in Bank
Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
Prev. Bal.
Trans. 7
$21,650
200
$200
200
$3,000
$200
$12,000
$11,650
$25,400
Balance
$21,850 $0
$3,000
$200
$12,000 $11,650 Making Inferences Refer
students to Business Transaction 7
(Digital Transparency 3-10). Ask: If you
see the word Receivable in an account
name, what type of account is it? asset
Why? It represents a claim to the assets
of other people or businesses. AL
R Reading Strategy
Reading Quantitative
Information Ask: What is the
balance of Accounts Receivable after this
transaction? $0 BL
Connect to History
$25,400
As you can see, each business transaction causes a change in assets,
liabilities, or owner’s equity. Analyzing each transaction to see how it
affects the accounting equation keeps everything in balance.
Section 3.2 Transactions That Affect Owner’s Investment, Cash, and Credit
61
PROFESSIONAL
DEVELOPMENT
ELL: Strategies for English
Language Learners Author Jana
Echevarria discusses strategies for
teaching English Language Learners.
Chapter 3
61
SECTION 3.2
SECTION 3.2 • ASSESSMENT
ASSESS
After You Read
SECTION 3.2 ASSESSMENT RESOURCES
Reinforce the Main Idea
Use these resources to assess mastery of
section content.
• Chapter Study Guides and Working
Papers (Problem 3-2)
• Presentation Plus!
Create a diagram like the one
shown here. For the boxes
marked “?”, fill in the correct labels
and give one example of a related
account for each category.
?
?
ⴝ
ⴙ
Owner’s Equity
Leo Jones, Capital
glencoe.com
Online Learning Center: Click
on Student Center. Click on
Self-Assessment Quizzes and
select Chapter 3.
SECTION 3.2 ASSESSMENT ANSWERS
Reinforce the Main Idea
Assets, example: Cash in Bank Liabilities,
example: Accounts Payable
Math for Accounting
1. L A OE
2. OE A L
$30,000 $9,000 $21,000
$25,000 $14,000 $11,000
$10,000 $2,000 $8,000
Math for
Accounting
The basic accounting
equation is in the form
of A L OE
1. What is the algebra
equation to find L?
2. What is the algebra
equation to find OE?
Using the rules of
algebra, determine the
missing dollar amount in
each equation.
Assets
?
$25,000
$10,000
Liabilities
PROBLEM 3–2
CLOSE
Synthesizing Write the accounting
equation for an imaginary business on
the board: $18,000 $12,000 $6,000
Then write this transaction: The owner
withdrew $1,500 for personal use.
Have students write the new accounting
equation. $16,500 $12,000 $4,500
62
Chapter 3
Owner’s Equity
$21,000
$11,000
?
62
Transactions on the Accounting
Equation
INSTRUCTIONS
Use these accounts to analyze the business transactions
of WordService.
Assets
Cash in Bank
Accounts Receivable
Computer Equipment
Office Furniture
Liabilities
Accounts Payable
Owner’s Equity
Jan Swift, Capital
On the form provided in your working papers, identify the accounts
affected by each transaction and the amount of increase or decrease in
each account. Make sure the accounting equation is in balance after each
transaction.
1. Jan Swift, owner, deposited $30,000 in the business checking
account.
2. The owner transferred to the business a desk and chair valued at
$700.
3. WordService issued a check for $4,000 for the purchase of a
computer.
4. The business bought office furniture on account for $5,000 from
Eastern Furniture.
5. The desk and chair previously transferred to the business by the
owner were sold on account for $700.
6. WordService wrote a check for $2,000 in partial payment of the
amount owed to Eastern Furniture Company.
Chapter 3 Business Transactions and the Accounting Equation
SECTION 33.22
QUIZ
1. Cash in Bank increased $30,000. Jan
Swift, Cap. increased $30,000.
2. Office Furn. increased $700.
Jan Swift, Cap. increased $700.
3. Cash in Bank decreased $4,000.
Computer Equip. increased $4,000.
4. Office Furniture increased $5,000.
Accts. Pay. increased $5,000.
5. Accts. Rec. increased $700.
Office Furniture decreased $700.
6. Cash in Bank decreased $2,000. Accts.
Pay. decreased $2,000.
$9,000
?
$2,000
PROBLEM 3–2 Determining the Effects of
1. What is a business transaction? an economic event that causes a change in assets, liabilities,
or owner’s equity
2. What do you call the subdivisions of assets, liabilities, and owner’s equity? accounts
3. What information is contained in an account? balance and record of increases and decreases
4. What is an investment? money or other property paid out to produce a profit
5. What account categories are affected when an owner invests in the business? Assets and
Owner’s Equity
SECTION 3.3
SECTION 3.3
TRANSACTIONS THAT AFFECT REVENUE, EXPENSE,
AND WITHDRAWALS BY THE OWNER
United Parcel Service (UPS) has thousands of shareholders who expect
a return on their investment in the business. The most common way for a
business to provide a return is by selling goods or providing services. UPS
earns revenue by providing a global delivery service. To provide the delivery
service, UPS incurs expenses like salaries, transportation, and insurance. In
this section you will learn about revenue and expense transactions as well
as owner’s withdrawals.
Revenue and Expense Transactions
What Are Revenue and Expenses?
Income earned from the sale of goods or services is called revenue.
Examples of revenue are fees earned for services performed and cash
received from the sale of merchandise. Revenue increases owner’s equity
because it increases the assets of the business.
Both revenues and investments by the owner increase owner’s equity,
but these represent very different transactions:
C
•
•
Revenue is income from the sale of goods and services.
Investment by the owner is the dollar amount contributed to the
business by the owner.
To generate revenue most businesses must also incur expenses to
buy goods, materials, and services. An expense is the cost of products or
services used to operate a business. Examples of business expenses are
SECTION VOCABULARY
Content Vocabulary
• revenue
• expense
• withdrawal
Academic Vocabulary
• generate
• conduct
glencoe.com
• Show Me tutorials
• Let Me Try interactive
activities.
• Analyzing: A business owner had
sales of $78,000 and expenses of
$42,000 last year. The owner took
$54,000 out of the business for
personal use. The owner’s original
investment was $20,000 in cash.
The owner is having trouble paying
business expenses. Have students
apply basic accounting to analyze
the problem and use accounting
terminology to explain why the
owner is having trouble paying
expenses.
• Digital Transparency 3-11 focuses
students’ attention on the topics
covered in Section 3.3.
TEACH
Drawing Conclusions Point out
to students that both revenue and
investments increase owner’s equity.
Ask: Which one of these is the result of
business operations? revenue OL
rent,
utilities, and
advertising.
Expenses decrease owner’s equity because they decrease the assets of the
business or increase liabilities.
The effects of revenue and expenses are summarized as follows:
Reading Check
Revenue increases assets and increases owner’s equity.
Expenses decrease assets and decrease owner’s equity or increase
liabilities and decrease owner’s equity.
Reading Check
Bell Ringer
C Critical Thinking
•
•
•
•
•
FOCUS
While both revenue and investments
increase owner’s equity, revenue is
income from the sale of goods and
services, and an investment by the owner
is the amount contributed of money
contributed to the business by the owner.
Contrast What is the difference between revenue
and investments by the owner?
Section 3.3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner
63
PRETEACHING SECTION VOCABULARY
Content Vocabulary
Before discussing the content
vocabulary, ask if students can define
any of the words based on what they
have read previously or on their own
real-world experience. Go over the
formal definitions, and then have
students write short paragraphs using
all three vocabulary words.
Academic Vocabulary
Write the following sentences on
the board. Have students rewrite
each sentence, using an academic
vocabulary word in place of the
underlined word or phrase.
1. The storm made it impossible to
carry on business. conduct
2. When the business is closed, it
cannot create revenue. generate
Chapter 3
63
CHAPTER 3
B u s i n e s s Tr a n s a c t i o n 8
Zip received a check for $1,200 from a customer, Sims Corporation, for delivery services.
TEACH
C1 Critical Thinking
ANALYSIS
1. Roadrunner received cash, so Cash in Bank is affected. The payment
received is revenue. Revenue increases owner’s equity, so Crista
Vargas, Capital is also affected.
2. Cash in Bank is an asset account. Crista Vargas, Capital is an owner’s
equity account.
3. Cash in Bank is increased by $1,200. Crista Vargas, Capital is also
increased by $1,200.
4. The accounting equation remains in balance.
Identify
C1
Classify
Making Inferences Refer students
to Business Transaction 8 (Digital
Transparency 3-12). Ask: How would
this transaction be different if Sims
Corporation made a promise to pay
(bought on account)? The Cash in Bank
balance would not change. Accounts
Receivable would increase by $1,200. OL
ⴙ/ⴚ
Balance
Liabilities Owner’s Equity
Assets
Cash
in Bank
Prev. Bal. $21,850
Trans. 8 1,200
R Reading Strategy
Using Reference Materials Refer
students to Business Transaction 9
(Digital Transparency 3-13). Have them
look up the various definitions of cash
in the dictionary. Ask students which
definition best describes the term cash as
it is used in this chapter.
Balance
$23,050 Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
$0
$3,000
$200
$12,000
$11,650
$25,400
1,200
$0
$3,000
$200
$12,000 $11,650 $26,600
B u s i n e s s Tr a n s a c t i o n 9
Zip wrote a check for $700 to pay the rent for the month.
ANALYSIS
1. Roadrunner pays rent for use of building space. Rent is an expense.
Expenses decrease owner’s equity, so the account Crista Vargas,
Capital is affected. The business is paying cash for the use of the
building, so Cash in Bank is affected.
2. Crista Vargas, Capital is an owner’s equity account. Cash in Bank is an
asset account.
3. Crista Vargas, Capital is decreased by $700. Cash in Bank is decreased
by $700.
4. The accounting equation remains in balance.
Identify
R
C2 Critical Thinking
Classify
Activating Prior Knowledge Ask:
What happens to your bank account
when you withdraw money? The account
decreases by the amount withdrawn. BL
ⴙ/ⴚ
Balance
Liabilities Owner's Equity
Assets
PROFESSIONAL
DEVELOPMENT
Cash
in Bank
Math: Solving Equations Students
use manipulatives and symbols to
solve simple equations.
Prev. Bal. $23,050
Trans. 9
700
Balance
$22,350 Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
$0
$3,000
$200
$12,000
$11,650
$26,600
700
$0
$3,000
$200
$12,000 $11,650 $25,900
Withdrawals by the Owner
C2
What Is a Withdrawal?
If a business earns revenue, the owner will take cash or other
assets from the business for personal use. This is called a withdrawal.
H
EAC E
Chapter 3
TO
AC H E
R
TE
64
Chapter 3 Business Transactions and the Accounting Equation
R
T
64
Lynn Carmen Day
Northview High School, Covina, California
Classifying Personal Inventories Have students brainstorm a list of assets and
liabilities. Then have students create a list for their own personal inventory for each
classification. When completed, have students represent the list and/or the accounting
equation through a picture poster or mobile.
SECTION 3.3
Withdrawals and investments have opposite effects. A withdrawal decreases
both assets and owner’s equity.
A withdrawal is not the same as an expense. Both decrease owner’s
C1
equity, but each represents a different transaction. An expense is the price
paid for goods and services used to operate a business. For example, a gardening service purchases fertilizer and lawncare supplies to conduct daily
operations. Withdrawals by the owner are cash or other assets taken from
the business for the owner’s personal use. Transaction 10 illustrates the
impact of a withdrawal on the accounting equation.
W
TEACH
C1 Critical Thinking
Making Inferences Point out
to students that both expenses and
withdrawals decrease owner’s equity.
Ask: Which one of these is the result of
business operations? expenses OL
B u s i n e s s Tr a n s a c t i o n 1 0
Crista Vargas withdrew $500 from the business for her personal use.
Identify
ANALYSIS
C2
Classify
ⴙ/ⴚ
Balance
1. A withdrawal decreases the owner’s claim to the assets of the business,
so Crista Vargas, Capital is affected. Cash is paid out, so the Cash in
Bank account is affected.
2. Crista Vargas, Capital is an owner’s equity account. Cash in Bank is an
asset account.
3. Crista Vargas, Capital is decreased by $500. Cash in Bank is decreased
by $500.
4. The accounting equation remains in balance.
Cash
in Bank
Prev. Bal. $22,350
Trans. 10
500
Balance
$21,850 Accounts
Receivable
Computer
Equipment
Office
Equipment
Delivery
Equipment
Accounts
Payable
Crista Vargas,
Capital
$0
$3,000
$200
$12,000
$11,650
$25,900
500
$0
$3,000
$200
$12,000 $11,650 Applying Prior Knowledge Refer
students to Business Transaction 10
(Digital Transparency 3-14). Ask:
What accounting assumption requires
that the business owner’s withdrawals
must be accounted for? business entity
Refer students to Chapter 2, p. 35 for
a review of the three basic accounting
assumptions. OL
$25,400
The following summarizes the transactions of this chapter. Can you
describe what is happening in each line?
Cash
in Bank
Prev. Bal.
0
Trans. 1 25,000
Trans. 2
Trans. 3 3,000
Trans. 4
Trans. 5
Trans. 6
350
Trans. 7
200
Trans. 8 1,200
Trans. 9
700
Trans. 10
500
Balance
Accounts
Receivable
Computer
Equipment
Office
Equipment
0
0
0
0
12,000
12,000
400
3,000
200
200
200
$21,850 $0
Delivery
Accounts
Owner’s
Equipment Payable Equity
0
Writing Persuasively Have students
write a memo justifying the owner’s
withdrawal of cash from the business.
Responses might recognize that the
owner is not making a salary. AL
C2 Critical Thinking
Liabilities Owner’s Equity
Assets
W Writing Support
0
25,000
400
350
1,200
700
500
$3,000
$200
$12,000 $11,650 $25,400
Section 3.3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner
65
EXTENDING THE CONTENT
Financial Literacy Point out to students that the goal of every business is to earn more revenue than
it pays out for expenses. Individuals should use this goal in their personal lives. Discuss the revenue
that students receive in their daily lives (part-time and full-time jobs, gifts, allowances). Discuss how, by
planning expenditures, students can make sure they do not spend more than they receive.
Chapter 3
65
SECTION 3.3
SECTION 3.3 • ASSESSMENT
ASSESS
SECTION 3.3 ASSESSMENT RESOURCES
Use these resources to assess mastery of
section content.
• Chapter Study Guides and Working
Papers (Problem 3-3)
• Presentation Plus!
After You Read
Reinforce the Main Idea
Use a table like the one shown here to
describe four transactions of a home
decorating business. Indicate how each
transaction affects owner’s equity.
Type of Transaction
Does Owner’s Equity
Increase or Decrease?
Transaction Description
Revenue
Expense
Investment
Withdrawal
glencoe.com
SECTION 3.3 ASSESSMENT ANSWERS
Reinforce the Main Idea
1. Revenue, the business receives a
check from a customer for services,
increases owner’s equity
2. Expense, the owner wrote a check to
pay the rent for the month, decreases
owner’s equity
3. Investment, the owner took cash from
a personal savings account to open a
business checking account, increases
owner’s equity
4. Withdrawal, the owner withdrew cash
from the business for personal use,
decreases owner’s equity
Math for Accounting
$9,900
PROBLEM 3–3
1. Cash in Bank decreased by $50. Jan
Swift, Cap. decreased by $50.
2. Cash in Bank increased by $1,000. Jan
Swift, Cap. increased by $1,000.
3. Cash in Bank decreased by $600. Jan
Swift, Cap. decreased by $600.
4. Cash in Bank decreased by $800. Jan
Swift, Cap. decreased by $800.
5. Cash in Bank increased by $200. Accts.
Rec. decreased by $200.
CLOSE
Synthesizing Have students write a
paragraph or draw a diagram to show
how revenue, expenses, and withdrawals
affect the accounting equation.
66
Chapter 3
Math for
Accounting
Determine the Cash
in Bank balance for
Wiemack Landscape
Designs after the third
transaction that follows.
All three transactions
occurred on the same
day. The Cash in Bank
balance before the first
transaction was $10,000.
1. John Wiemack, the
owner, withdrew
$1,000 from
personal savings
and deposited
that amount in the
business checking
account.
2. Purchased computer
equipment for
$5,000; issued a
check for 20 percent
of the price and
agreed to pay the
balance at a later
date.
3. Issued a check for
$100 to buy tools.
66
PROBLEM 3–3 Determining the Effect of
Transactions on the Accounting
Equation
INSTRUCTIONS Use the accounts of WordService to analyze these
business transactions. The beginning balance for each account is shown
following the account name.
Assets
Cash in Bank, $24,000
Accounts Receivable, $700
Computer Equipment, $4,000
Office Equipment, $5,000
Liabilities
Accounts Payable
$3,000
Owner’s Equity
Jan Swift, Capital
$30,700
On the form provided in your working papers, identify the accounts
affected by each transaction and the amount of the increase or decrease
for each account. Make sure the accounting equation is in balance after
each transaction.
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.
Chapter 3 Business Transactions and the Accounting Equation
SECTION 33.33
QUIZ
Online Learning Center: Click
on Student Center. Click on
Self-Assessment Quizzes and
select Chapter 3.
1.
2.
3.
4.
5.
How do revenue and investments affect owner’s equity? Both increase owner’s equity.
Which is earned: revenue, investments, or both? revenue
How do expenses and withdrawals affect owner’s equity? Both decrease owner’s equity.
Which is a cost of operating the business: expenses, withdrawals, or both? expenses
What account categories are affected when an owner withdraws money? Assets and
Owner’s Equity
CHAPTER 3 • VISUAL SUMMARY
CHAPTER 3
Visual Summary
glencoe.com
m D
Download the Vocabulary review, i-Summary, and i-Quiz for Chapter 3.
After students have looked at the Visual
Summary, challenge them to create their
own diagrams of the Procedures section.
Tell them that these diagrams could be
used to help them remember the three
basic accounting assumptions. Choose
several to discuss and share with the
class.
Describe the relationship between property and financial claims
Concepts
PROPERTY
FINANCIAL CLAIMS
Property is anything of
value that a person or
business owns. Property
is measured in dollars.
ⴝ
Financial claims are the legal rights to
property and are also measured in dollars.
ⴙ
English Language
Learners
Students whose primary language is not
English might benefit from extra review
or tutoring at this point. Refer students
to the Concepts section of the Visual
Summary. Ask them to give examples
of property and financial claims as
described in the graphic organizer.
Analysis
List and define each part of the accounting equation.
PROPERTY
ASSETS
Items of value owned by
the business
ⴝ
ⴝ
FINANCIAL CLAIMS
LIABILITIES
Financial claims
of creditors
ⴙ
OWNERS EQUITY
Financial claims of owners
Procedures
Use the following steps to analyze a business transaction:
IDENTIFY
Identify the accounts affected.
CLASSIFY
Classify the accounts affected.
ⴙ/ⴚ
BALANCE
Determine the amount of increase
or decrease for each account affected.
Make sure the accounting
equation remains in balance.
Chapter 3 Visual Summary
CHAPTER 3 ASSESSMENT RESOURCES
Student Edition
• Reading Check, pp. 54, 63
• Section Assessments 1, 2, 3: pp. 56, 62, 66
• Review and Activities, p. 68
• Standardized Test Practice, p. 69
• Chapter 3 Problems, pp. 71–75
• Real-World Applications and Connections,
pp. 76–77
67
Use these resources to review, assess, or reteach the chapter.
Teacher Edition
• Section Quizzes 1, 2, 3: pp. 56, 62, 66
Fast File Chapter 3 Resources
(on TeacherWorks Plus)
• Concept Assessment
• Quick Quiz
• Chapter Quiz
• Chapter Test
• Performance Task Assessment List
• Rubric
ExamView Assessment Suite
Connect Assignment Builder
Chapter 3
67
CHAPTER 3
CHAPTER 3 • REVIEW AND ACTIVITIES
Review and Activities
After You Read
After You Read
Answering the Essential Question
1. The intent of this essential question is
to help students use inquiry to arrive
at an understanding of the basic role
of accounting. Once they see the
benefit of …
Vocabulary Check
2. See the glossaries for definitions of
these terms. Have students share and
discuss their definitions.
3. Student’s answers should accurately
reflect the dictionary definitions of the
Academic Vocabulary terms.
Concept Check
4. Property is anything of value that a
person or business owns and, therefore,
controls; it is measured in dollars.
Financial claims are the legal rights to
property; it also is measured in dollars.
5. The two types of equities are owner’s
equity and liabilities. Examples are
Owner’s Capital and Accounts Payable.
6. ASSETS LIABILITIES OWNER’S
EQUITY. Asset account: Cash in Bank,
Liability account: Accounts Payable,
Owner’s Equity Account: The owner’s
capital account
Owner’s
7.
Assets ⴝ Liabilities ⴙ Equity
A:
B:
C:
D:
E:
F:
G:
1. Why is understanding the accounting equation crucial to understanding the condition of any business?
Suppose your cell phone (property/asset) is worth $150.00. You had to borrow $100.00 from your
parents (creditor’s financial claim/liability) to buy it. What part of the total value of the phone is yours
(owner’s financial claim/owner’s equity? Why would it be important for owners and investors to have
that kind of information about a business?
Vocabulary Check
2. Content Vocabulary Arrange the vocabulary terms below into categories—groups of related words.
Explain why you put the words together.
• property (p. 53)
• owner’s equity (p. 55)
• accounts payable (p. 58)
• financial claim (p. 53)
• liabilities (p. 55)
• investment (p. 58)
• credit (p. 53)
• accounting equation (p. 55)
• on account (p. 60)
• creditor (p. 53)
• business transaction (p. 57)
• revenue (p. 63)
• assets (p. 54)
• account (p. 57)
• expense (p. 63)
• equities (p. 55)
• accounts receivable (p. 57)
• withdrawal (p. 65)
3. Academic Vocabulary For each of the academic vocabulary words, write a sentence, substituting a word
of phrase that means the same thing as the word.
• funds (p. 53)
• eventually (p. 57)
• generate (p. 63)
• acquire (p. 53)
• transfer (p. 58)
• conduct (p. 65)
Concept Check
4.
5.
6.
7.
Analyze Define property and financial claims. What is the relationship between the two?
Name the two types of equities in a business. Give an example of an account that is used for each.
What is the accounting equation? Give an example of an account for each part of the equation.
Evaluate How does each of the following transactions affect the three parts of the accounting equation?
A. Owner transfer of cash from personal savings account to the business
B. Owner withdrawal of cash from the business for personal use
C. Purchase of equipment for cash
D. Purchase of equipment on credit
E. Issued check for payment on Transaction D
F. Received payment for design consulting
G. Issued check to pay telephone bill
8. Synthesize At least how many accounts must be affected by each business transaction. Why?
English Language Arts
9. A transaction occurs each time you spend
money for something, receive money for
something, or loan or borrow money. Make
a list of transactions that you make for one
week. When the week is over, analyze your
8. At least two accounts must be affected
so that the accounting equation
remains in balance.
English Language Arts
9. Students should have created a
spreadsheet and correctly logged the
transactions they made for the week.
They should have transactions grouped
into categories and have totaled the
amounts for each category. Lastly, they
should have analyzed their earnings and
expenses, giving conclusions on how
their financial stability was impacted.
68
Chapter 3
Answering the Essential Question
68
Chapter 3 Review and Activities
transactions, grouping them into categories.
In two or three paragraphs, describe how
your decisions were either sound or needed
improvement.
NCTE 7 Conduct research and gather, evaluate, and synthesize data
to communicate discoveries.
CHAPTER 3 • STANDARDIZED TEST PRACTICE
CHAPTER 3
Standardized Test
Practice
Multiple Choice
1. A creditor’s claim to the property of an individual or business is called —
a. an equity
b. an asset
c. a liability
d. a credit
Multiple Choice
1. c
2. a
3. a
2. An business owner’s claim to the property of the business is called —
a. an equity
b. an asset
c. a liability
d. a credit
True or False
4. False
5. True
6. True
3. The money a business earns is
a. revenue
b. a withdrawal
c. an asset
d. an account payable
Short Answer
7. Students may list three of the
following: cash, office equipment,
manufacturing equipment buildings,
or land
True or False
Extended Response
8. Student responses should explain
that accounts receivable is money
owed to a business on account and
that accounts payable is money that
a business owes to other companies
on account. Accounts receivable is
an asset account, while accounts
receivable is a liability account.
4. The accounting equation is stated as “Assets Liabilities Owner’s Equity.”
5. Cash withdrawals decrease owner’s equity by decreasing assets and the owner’s financial claim.
6. Accounts payable is the amount of money owed, or payable, to the creditors of a business.
Short Answer
7. List three kinds of assets that a business can own.
Extended Response
8. Explain the difference between Accounts Receivable and Accounts Payable.
Chapter 3 Standardized Test Practice
69
Chapter 3
69
CHAPTER 3
CHAPTER 3 • COMPUTERIZED ACCOUNTING
Computerized
Accounting
Exploring Electronic Spreadsheets
Behind the Scenes
Using Spreadsheets in Accounting
Spreadsheet applications are
incorporated into the Glencoe Accounting
program. Designated spreadsheet
problems are identified in the student
textbook with a spreadsheet icon. The
spreadsheet activities range from working
with the basic accounting equation to
completing a 10-column work sheet to
analyzing financial statements.
Completing the spreadsheet activities will
help students gain realistic experience in
using spreadsheet software for a variety
of accounting tasks. Spreadsheet problem
templates are provided for students
working in a Windows environment using
Microsoft® Excel and can be launched
through the Electronic Learning Center.
General instructions for completing
each spreadsheet problem are provided
in the student textbook beside the
problem. Additional instructions for each
spreadsheet activity are included in the
student’s Chapter Study Guides and
Working Papers.
Computer spreadsheets are important tools for organizing and analyzing data. A spreadsheet is made
up of rows and columns. The columns are identified by letters and the rows are identified by numbers.
As you create a spreadsheet, you will enter numbers, labels, and formulas into cells. Microsoft® Excel is
the most commonly used spreadsheet application in the business world. The following is an example of
a basic electronic spreadsheet:
1
Chapter 3
6
A
5
B
Jan
C
Feb
D
March
E
April
F
May
G
June
H
July
2,500
5,000
1,650
10,000
3,100
8,200
12,500
700
1,200
225
3,550
1,800
2,300
5,600
3,800
1,425
6,450
1,300
5,900
6,900
1
2
Sales
3
Expenses
4
Net income
1,800
3
4
5
6
8
7
Before you create a computer spreadsheet, review the following spreadsheet terms.
Spreadsheet Terms
1
Row
2
Column
3
Cell address
Description
Identified by numbers down the left side of the spreadsheet.
Identified by letters along the top of the spreadsheet.
Identified by a column letter and row number. For example, the
cell address B4 indicates the cell where the number 1,800 is found.
Indicated by a dark border.
4
Active cell
5
Scroll arrows
6
Labels
Text that identifies columns or rows of information; cannot be
used for calculations.
7
Values
Numbers inserted in cells that can be used for calculations.
8
Formulas
70
70
2
Allows you to view other parts of the spreadsheet.
Mathematical functions entered in a particular cell that tells the
software to add, subtract, divide, or multiply values. For example,
E2 E3 represents 10,000 3,550, or 6,450
Chapter 3 Computerized Accounting
CHAPTER 3 • PROBLEMS
CHAPTER 3
PROBLEM 3–4
PROBLEM 3–4 Classifying Accounts
All accounts belong in one of the following classifications: Asset, Liability,
Owner’s Equity.
INSTRUCTIONS In your working papers, indicate the classification for each
of the following accounts.
1. John Jones, Capital
6. Delivery Equipment
2. Cash in Bank
7. Camping Equipment
3. Accounts Receivable
8. Building
4. Accounts Payable
9. Land
5. Office Equipment
10. Computer Equipment
Analyze
PROBLEMS CAN BE SOLVED USING:
Classifying Accounts
Manual Methods
• Manual Glencoe
Working Papers
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Computerized Methods
• Spreadsheet
• Templates
Identify the accounts that represent financial claims to
property.
PROBLEM 3–5 Completing the Accounting
Equation
Analyze
A business owned and operated by Mike Murray uses these accounts.
INSTRUCTIONS Look at the following list of accounts, and determine the
missing amount for each of the question marks.
Assets
Cash in Bank
Accounts Receivable
Office Equipment
$4,500
1,350
5,000
Liabilities
Accounts Payable
?
John Jones, Capital and Accounts Payable
These accounts represent the owner’s
claim and creditors’ claims, respectively.
All other accounts are asset accounts.
Owner’s Equity
Mike Murray,
Capital $9,250
PROBLEM 3–5
Completing the Accounting
Equation
?
Analyze
Total Assets $10,850
Liabilities (Accounts Payable) $1,600
Predict what would happen to owner’s equity if this business
paid all of its bills today.
Analyze
PROBLEM 3–6 Classifying Accounts
Owner’s equity would not change.
The decrease in Cash in Bank (an asset)
would equal the decrease in Accounts
Payable (a liability).
Within the Accounting Equation
Listed here are the account names and balances for Wilderness Rentals.
Accounts Payable
$ 7,000
Cash in Bank
$ 5,000
Accounts Receivable
2,000
Office Equipment
3,000
Camping Equipment
12,000
Ronald Hicks, Capital
15,000
INSTRUCTIONS Using these account names and balances:
1. List and total the assets of the business.
2. Determine the amount owed by the business.
3. Give the amount of the owner’s equity in the business.
Analyze
Owner’s Equity
Asset
Asset
Liability
Asset
Asset
Asset
Asset
Asset
Asset
PROBLEM 3–6
Classifying Accounts Within
the Accounting Equation
Design a diagram that shows the accounting equation for
Wilderness Rentals.
Chapter 3 Problems
71
Total Assets: $22,000 (Cash in Bank,
Accounts Receivable, Camping
Equipment, Office Equipment)
Liabilities: $7,000
Owner’s Equity: $15,000
Analyze
Assets
Owner’s
Liabilities Equity
Cash in Accounts Camping
Office Accounts Serge Toblek,
Bank Receivable Equipment Equipment Payable
Capital
$5,000 $2,000 $12,000
$3,000 $7,000 $15,000
$22,000
$22,000
Chapter 3
71
CHAPTER 3
CHAPTER 3 • PROBLEMS
PROBLEM 3–7
PROBLEM 3–7 Determining Increases and
Determining Increases and
Decreases in Accounts
Decreases in Accounts
Hot Suds Car Wash uses the following accounts:
1. Cash in Bank, asset, $25,000;
Regina Delgado, Capital, owner’s
equity, 25,000
2. Car Wash Equipment, asset,
$12,000; Cash in Bank, asset,
$12,000
3. Office Equipment, asset, $2,500;
Accounts Payable, liability,
$2,500
4. Regina Delgado, Capital, owner’s
equity, $800; Cash in Bank,
asset, $800
5. Cash in Bank, asset, $1,000;
Regina Delgado, Capital, owner’s
equity, $1,000
6. Regina Delgado, Capital, owner’s
equity, $600; Cash in Bank,
asset, $600
7. Office Furniture, asset, $1,000;
Cash in Bank, asset, $200;
Accounts Payable, liability, $800
8. Accounts Receivable, asset, $600;
Regina Delgado, Capital, owner’s
equity, $600
Assets
Cash in Bank
Accounts Receivable
Office Equipment
Office Furniture
Car Wash Equipment
Owner’s Equity
Accounts Payable
Regina Delgado,
Capital
Trans.
Accounts
Affected
Classification
Amount of Increase ()
or Decrease ()
1.
Cash in Bank
Asset
$25,000
Regina
Delgado,
Capital
Owner’s Equity
$25,000
Date
Jan.
Transactions
1
4
5
10
12
15
Transaction 7. It affects three accounts:
Office Furniture, Cash in Bank, and
Accounts Payable.
20
25
Analyze
72
Chapter 3
Liabilities
INSTRUCTIONS Use a form similar to the one that follows. For each
transaction:
1. Identify the accounts affected.
2. Classify the accounts.
3. Determine the amount of the increase () or decrease () for each
account affected.
The first transaction is completed as an example.
Analyze
72
Chapter 3 Problems
1. Regina Delgado, the owner, invested $25,000 cash in
the business.
2. Bought car wash equipment with cash for $12,000.
3. Purchased, on account, $2,500 of office equipment.
4. Wrote a check for the monthly rent, $800.
5. Received cash for services performed, $1,000.
6. The owner withdrew $600 cash from the business
for personal use.
7. Purchased a desk for $1,000, paying $200 cash
and agreeing to pay the balance of $800 in 30 days.
8. Provided services worth $600 on account.
Identify the transaction that affects the most accounts.
CHAPTER 3
PROBLEM 3–8
PROBLEM 3–8 Determining the Effects
Determining the Effects
of Transactions on the
Accounting Equation
of Transactions on the
Accounting Equation
After graduating from college, Abe Shultz decided to start a pet grooming
service called Kits & Pups Grooming.
INSTRUCTIONS Use a form similar to the one that follows. For each of the
following transactions:
1. Identify the accounts affected, using the account names on the form.
2. Determine the amount of the increase or decrease for each account.
3. Write the amount of the increase () or decrease () in the space under
each account affected.
4. On the following line, write the new balance for each account.
5. Transaction 1 is completed as an example.
Assets
Trans. Cash in
Bank
1
Owner’s
Equity
Accounts
Payable
Abe Shultz,
Capital
$10,000
Date
Jan.
Accts. Office Grooming
Rec. Equip.
Equip.
Liabilities Ending account balances:
Cash in Bank $6,800
Accounts Receivable $500
Office Equipment $6,000
Grooming Equipment $1,000
Accounts Payable $4,000
Abe Schultz, Capital $10,300
Analyze
Transaction 5 is a cash transaction.
Transaction 7 is a credit transaction.
$10,000
Transactions
2
3
8
9
15
21
29
Analyze
1. Abe Shultz began the business by depositing $10,000 in
a checking account at the Shoreline National Bank in the
name of the business, Kits & Pups Grooming.
2. Bought grooming equipment for cash, $1,000.
3. Issued a check for $900 for the monthly rent.
4. Bought $6,000 worth of new office equipment on account
for use in the business.
5. Received $700 cash for services performed for customers
during the first week of business.
6. Issued a $2,000 check to the creditor as partial payment
for the office equipment purchased on account.
7. Performed grooming services and agreed to be paid for
them later, $500.
Explain the difference between Transaction 5 and
Transaction 7.
PROBLEM 3–9 Determining the Effects of
Transactions on the Accounting
Equation
Juanita Ortega is the owner of a professional guide service called Outback
Guide Service.
CONTINUE
Chapter 3 Problems
73
Chapter 3
73
CHAPTER 3
CHAPTER 3 • PROBLEMS
PROBLEM 3–9
Determining the Effects of
Business Transactions on the
Accounting Equation
Ending account balances:
Cash in Bank $28,000
Accounts Receivable $1,200
Hiking Equipment $3,000
Rafting Equipment $24,000
Office Equipment $4,450
Accounts Payable $2,500
Juanita Ortega, Capital $58,150
Analyze
SPREADSHEET
SMART GUIDE
Step–by–Step Instructions:
Problem 3–9
1. Select the spreadsheet
template for Problem 3–9.
2. Enter your name and
the date in the spaces
provided on the template.
3. Complete the spreadsheet
using the instructions in
your working papers.
4. Print the spreadsheet and
proof your work.
5. Complete the Analyze
activity.
6. Save your work and exit
the spreadsheet program.
INSTRUCTIONS Use a form similar to the one below. Complete these steps
for each of the following transactions:
1. Identify the accounts affected.
2. Write the amount of the increase () or decrease () in the space
provided on the form in your working papers.
3. Determine the new balance for each account.
Trans. Cash in Accts. Hiking Rafting Office
Bank
Rec. Equip. Equip. Equip.
Date
Jan.
$ 4,000 (Transaction 5)
1,500 (Transaction 9)
$ 2,500
Accounts
Payable
Juanita
Ortega,
Capital
Transactions
3
6
8
The amount owed to creditors after
Transaction 10 is $2,500.
Owner’s
Liabilities Equity
Assets
9
11
15
18
21
26
30
Analyze
1. Ms. Ortega, the owner, opened a checking account for
the business by depositing $60,000 of her personal funds.
2. Paid by check the monthly rent of $3,000.
3. Bought hiking equipment for the business by writing
a check for $3,000.
4. Purchased $24,000 of rafting equipment by writing a
check.
5. Purchased office equipment on account for $4,000.
6. Received payment for guide services, $2,500.
7. Ms. Ortega contributed a desk valued at $450 to the
business.
8. Withdrew $3,000 cash from the business for personal use.
9. Wrote a check to a creditor as partial payment on account,
$1,500.
10. Took a group on a tour and agreed to accept payment later,
$1,200.
Calculate the amount owed to creditors after Transaction 10.
PROBLEM 3–10 Describing Business
Transactions
Showbiz Video is a business owned by Greg Failla. The transactions that
follow are shown as they would appear in the accounting equation.
INSTRUCTIONS In your working papers, describe what has happened in
each transaction. Transaction 1 is completed as an example.
Example:
1. The owner invested $30,000 in the business.
CONTINUE
74
74
Chapter 3
Chapter 3 Problems
CHAPTER 3
PROBLEM 3–10
Owner’s
Liabilities Equity
Assets
Trans. Cash in
Bank
1
$30,000
2
$ 2,000
Accts.
Rec.
Office
Equip.
Greg Failla,
Capital
1. The owner invested $30,000 in the
business.
2. Purchased office equipment with
cash, $2,000.
3. Bought video equipment on account
for $8,000.
4. Received payment for services,
$700, or owner invested $700 in the
business.
5. Performed services and customer
agreed to pay later, $500. Or, rented
video equipment or Blu-ray Discs to
customers who agreed to pay later.
6. Greg Failla invested office
equipment, which was valued at
$200.
7. Issued a $3,000 check to creditor.
8. Showbiz Video sold old office
equipment for $200 on account.
9. Received payment on account for
services previously performed, $500.
10. The owner withdrew $1,000 cash
from the business for personal use.
$ 8,000
700
$ 500
5
$ 200
6
7
Accounts
Payable
$30,000
$ 8,000
$
$ 2,000
3
4
Video
Equip.
Describing Business
Transactions
$ 3,000
$
700
$
500
$
200
$ 3,000
$ 200 $ 200
8
9
$
10
$ 1,000
500 $ 500
Analyze
$ 1,000
Calculate the balance of the account, Greg Failla, Capital.
PROBLEM 3–11 Completing the Accounting
CHALLENGE
PROBLEM
Equation
The account names and balances for Job Connect are listed below.
INSTRUCTIONS Determine the missing amount for each of the question
marks. Use the form in your working papers and write in the missing
amounts.
Assets
Trans. Cash in Accounts Business
Bank
Receivable Equipment
1
?
$ 2,000
2
$ 3,000
3
$ 8,000
4
5
Liabilities Owner’s
Equity
Accounts
Payable
Richard Tang,
Capital
$ 1,000
$ 500
$ 7,500
$ 9,000
?
$ 2,000
$16,000
$ 1,000
$10,000
?
$15,000
$ 4,000
?
$ 4,000
$ 1,000
$17,000
$ 9,000
$ 7,000
$ 6,000
$ 5,000
?
6
$10,000
$14,000
?
$ 6,000
$32,000
7
$ 6,000
$ 4,000
$10,000
?
$15,000
8
?
$ 5,000
$ 9,000
$ 1,000
?
Analyze
$30,400 ($30,000 $700 $500 $200 $1,000)
CHALLENGE
PROBLEM
Hint: In line 8, total assets are $18,000.
PROBLEM 3–11
Analyze
Completing the
Accounting Equation
Explain the mathematical operations used to solve for the
accounting equation.
Chapter 3 Problems
75
1.
2.
3.
4.
5.
6.
7.
8.
$5,000
$6,000
$4,000
$10,000
$17,000
$14,000
$5,000
$4,000, $17,000
Analyze
Addition and subtraction are used to
solve the accounting equation.
Chapter 3
75
CHAPTER 3
REAL-WORLD Applications & Connections
WITH
H.O.T.
HIGHER ORDER THINKING
Certified Public
Accountant (CPA)
Students’ answers should show that
they have researched the responsibilities
involved with running your own business.
Examples of things they might list include
keeping business records, hiring, managing
and supervising support staff, keeping the
office building maintained, and purchasing
supplies and equipment, among others.
Certified Public Accountant (CPA)
A certified public accountant can be a great career for
those who are interested in working with a variety
of clients and doing a variety of accounting tasks,
rather than working with only one organization or
specializing in a certain type of task.
EDUCATION REQUIREMENTS Most states require a CPA
to have 150 hours of college coursework, which means
pursuing a master’s degree in addition to a bachelor’s
degree. CPAs must also pass a special licensing exam
and continue to take classes throughout their career.
Information
and Media
Literacy
ROLES The CPA acts as an accountant for the general
public. The CPA advises the general public on tax and
financial matters and advises companies on how to
control their procedures to make sure they comply
with accounting standards and procedures.
1. Suggest students research government
Web sites such as USAJobs.com and
career service Web sites.
2. Related careers include accountant,
auditor, bookkeeper, accounting and
auditing clerks, budget analyst, loan
officer, financial analyst, and bill and
account collectors, among others.
RESPONSIBILITIES A CPA must always exercise good
judgment and conduct their work ethically. They must
do a good job advising their clients and be a good
representative of the accounting profession.
ACTIVITY CPAs very often have their own businesses.
Use the career information tools available to you
(internet, library, and your career center) to research
the extra responsibilities that come with owning your
own business. Write a paragraph summarizing what
you discovered.
76
76
Chapter 3
Chapter 3 Real-World Applications and Connections
Information and Media
Literacy
Making decisions, whether business
or personal, requires being able to
acquire and analyze information.
Imagine you have just graduated and
are ready to look for a job matching
your skills and interests.
INSTRUCTIONS
1. Use the internet to find local job
postings and then to research the
companies that are hiring. Would
you be interested in working for
any of these companies?
2. Write a summary of your findings,
and describe the accounting career
opportunities you think these
organizations might offer.
CHAPTER 3
Company
Property
H.O.T. Audit
Company Property
Your Earning Power
Many companies provide
office supplies for their
employees’ use while on the
job. Imagine that you work
for a large department store
like JC Penney. Several of
your coworkers take company
supplies home for their
personal use, such as pens,
bags, hangers, and boxes.
You need boxes to store
some items at home, so you
consider taking them from the
supply room.
Your future income will
depend on various things
including your career choice,
your education, and the
region where you live.
ACTIVITY Define the ethical
issue involved. Then describe
how you think ethics relates
to taking supplies from the
workplace. Who are the
affected parties? What are
the alternatives? How do the
alternatives affect the parties?
What would you do?
ACTIVITY List three jobs
that are in different fields and
different regions in the United
States. Using the Internet or
library, research the education
requirements and the salary
ranges of the three jobs.
Create a table and organize
the results of your research.
Point out to students that many
companies have written policies on the
use or buying of company products by
employees. Other companies may have
informal guidelines about company
property. For the boxes in this case, the
company would probably discard them
if they are not needed, in which case
employees would likely be welcome to
them. It is probably a good policy to ask
a supervisor or manager, though, before
assuming that a company is discarding
items.
Conducting an Audit
with Alex
In this and later chapters, you
will be Conducting Audits
with Alex. To audit means to
examine and verify financial
records and reports.
INSTRUCTIONS Review the
business transactions recorded
in the accounting equation
below for errors. On a separate
sheet of paper, make any
corrections necessary.
A. Purchased a delivery truck
for $25,000 on account
from A-1 Trucks Inc.
B. Wrote a check for $1,000 to
A-1 Trucks Inc. for payment
on account.
ASSETS ⴝ
Cash
In Bank
A. 0
B. ⴚ$1,000
Your Earning
Power
Answers will vary.
Students could use a table similar to the
one below.
LIABILITIES ⴙ OWNER’S
EQUITY
Delivery
Accounts J. Smith
Equipment Payable
Capital
ⴚ$25,000
ⴚ$25,000
0
0
ⴚ$ 1,000
0
Chapter 3 Real-World Applications and Connections
Jobs Location
Education
Required
Salary
Ranges
Notes of interest
• People with low income are usually
very young or very old.
• Formal education, by and large, has
an effect on your income potential.
Higher income is usually equated with
individuals with formal education.
The more education, the higher the
income.
• Salaries vary by the region of the
country in which you live. However,
the cost of living is usually higher
if salaries are higher.
• Professional and management
personnel with college degrees tend
to earn higher salaries.
77
H.O.T. Audit
FINANCIAL Write the following statement on the board: We are living in the era of a
LITERACY “one-world economy.” Ask students whether they agree or disagree with
this statement, and then ask them to provide reasons for their responses.
Conducting an
Audit
Answer: Transaction A is incorrect.
The correct entry is to increase (+) the
Asset Delivery Equipment $25,000 and
to increase (+) the Liability Accounts
Payable $25,000. Transaction B is correct.
Chapter 3
77