LESSON 1-3 How Transactions Change Owner’s Equity in an Accounting Equation CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 2 REVENUE When a business sells merchandise or services Results in an increase in owner’s equity CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 3 SALE ON ACCOUNT Sale where cash is received at a later date Buy merchandise now and pay in 30 days CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 4 REALIZATION OF REVENUE Accounting concept Revenue must be recorded at the time of sale Regardless of when payment is made Even when bought on account CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 5 EXPENSE Transaction to pay for goods or services needed to operate a business Results in a decrease to owner’s equity Opposite of revenue CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 6 WITHDRAWALS Assets taken out a business for the owner’s personal use Can be any asset Usually the owner takes out cash CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 7 REVENUE TRANSACTIONS page 14 Transaction 6 August 12. Received cash from sales, $295.00. Transaction 7 August 12. Sold services on account to Oakdale School, $350.00. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 8 EXPENSE TRANSACTIONS page 15 Transaction 8 August 12. Paid cash for rent, $300.00. Transaction 9 August 12. Paid cash for telephone bill, $40.00. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3 9 OTHER CASH TRANSACTIONS page 16 Transaction 10 August 18. Received cash on account from Oakdale School, $200.00. Transaction 11 August 18. Paid cash to owner for personal use, $125.00. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 1-3