Chapter 1 – Section 3
How Transactions Change Owner’s Equity in an
Accounting Equation

Transaction for the sale of goods or
services.

Results in

Increase in OE from the business
transactions is called Revenue.

Ex: cash from sales, sold services
owner’s equity.
Revenue Transactions
Assets
= Liabilities + O/E
Cash + A/R + Supplies + P/I =
$3,225 $0
$775 $1,200
A/P
KP, Capt.
$200
$5,000
+$295
$3,520
+295
$0
$775 $1,200
Transaction #6
$200
$5,295

What happens when you sell something
but don’t receive the money now?

Sale on account (aka charge sale)

On what date should the transaction being
recorded?
◦ When it occurred or when the money is
received?

What is Realization of Revenue?
Revenue Trans. Cont.
Assets
= Liabilities + O/E
Cash + A/R + Supplies + P/I =
$3,225 $0
$775 $1,200
A/P
KP, Capt.
$200
$5,000
+$295
+$295
+$350
$3,520
$350
+$350
$775 $1,200
Transaction #7
$200
$5,645

Transaction to pay for goods or services.

Results in

Decrease in O/E from business
transactions is an Expense.

Ex: Rent, phone bill, repairs, advertising,
salary, etc…
owner’s equity.
Expense Transactions
Assets
= Liabilities + O/E
Cash + A/R + Supplies + P/I =
A/P
KP, Capt.
$3520 $350 $775
$1200
$200
$5645
-$300
-$300
-$40
-$40
$3180
$350
$775
$1200
Transactions 8 & 9
$200
$5305
Business receives money for a prior
purchase.
 Two accts. affected = A/R and Cash

Owner takes assets for personal use.
 Called a Withdrawal
 Affects = An asset and Capital

Other Cash Transactions
Assets
= Liabilities + O/E
Cash + A/R + Supplies + P/I =
A/P
KP, Capt.
$3180 $350 $775
$1200
$200 $5305
+$200
-$200
-$125
$3255
-$125
$150
$775
$1200
Transactions 10 & 11
$200
$5180
Beginning Capital
$5,000.00
Revenue #6
295.00
Revenue #7
350.00
Expense #8
300.00
Expense #9
40.00
Withdrawal #11
125.00
Ending Capital
$5,180.00
Total Change = $180.00
Changes in Owner’s Equity