How Transactions Change Owner’s
Equity in an Accounting Equation
The changes that typically effect the day to
day activities within a business.
Vocabulary
• Revenue
• Sale on Account
• Expense
• Withdrawals
Revenue Transactions
Received Cash from Sales
Transactions for the sale of Goods and Services
results in an increase in owner’s equity.
Sold Services on Account
The customer is allowed to pay the business by a
later specified date.
REVENUE TRANSACTIONS
Transaction 6 August 12. Received cash from sales, $325.00.
Transaction 7 August 12. Sold services on account to Kids Time,
$200.00.
Lesson 2-1, page 26
Paid Cash for Expenses
A transaction to pay for Goods or Services
needed to operate the business results as a
decrease in Owner’s Equity.
PAID CASH FOR EXPENSES
Transaction 8 August 12. Paid cash for rent, $250.00.
–45 (expense)
Transaction 9 August 12. Paid cash for telephone bill, $45.00.
Lesson 2-1, page 27
Other Transactions
Received Cash on Account
This transaction increases Cash, and decreases Accounts Receivable
They receives cash from a customer for a prior sale.
Paid Cash to Owner for Personal Use
This transaction typically decreases Owner’s Equity, and decreases Cash
This is also know as a withdrawal.
Summary of Changes in Owner’s Equity
By adding each transaction effecting Owner’s Equity, the owner can see
the total affect they had on the Owner’s Equity, positively or negatively.
OTHER TRANSACTIONS
Transaction 10 August 12. Received cash on account from Kids Time,
$100.00.
–100 (withdrawal)
Transaction 11 August 12. Paid cash to owner for personal use,
$100.00.
Lesson 2-1, page 28
SUMMARY OF CHANGES IN OWNER’S
EQUITY
Transaction
Number
6
7
8
9
11
Change in
Kind of Transaction
Owner’s Equity
Revenue (cash)
Revenue (on account)
Expense (rent)
Expense (telephone)
Withdrawal
+325.00
+200.00
–250.00
–45.00
–100.00
Net change in owner’s equity
+130.00
Lesson 2-1, page 28