LESSON 1-3
How Transactions Change
Owner’s Equity in an
Accounting Equation
Original created by M.C. McLaughlin, Thomson/South-Western
Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School
CENTURY 21 ACCOUNTING © Thomson/South-Western
2
Receiving Cash From Sales
A transaction for the sale of goods or
services results in an increase in
owners equity.
Revenue – an increase in owners
equity resulting from the operation of a
business.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3
3
Sales on Account
Sale on Account – a sale for which
cash will be received at a later date.
Also called a charge sale.
These accounts are called Accounts
Receivable and are assets.
Realization of Revenue - revenue is
recorded at the time goods or services
are sold.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3
4
Sales on Account
Analyze the transaction: What accounts will the
transaction affect?
We have a customer who owes us
money so the asset, accounts
receivable is increasing.
We made a sale of merchandise
which is revenue and increases
owners equity.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3
5
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 © Thomson/South-Western
LESSON 1-3
6
Expense Transactions
Expense – a decrease in owners equity
resulting from the operation of a
business.
A transaction to pay for goods or
services needed to operate a business
results in a decrease in owners equity.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3
7
Expense Transaction
Analyze the transaction: What accounts will the
transaction affect?
We paid cash so our assets are
decreasing.
We incurred an expense which
decreases our owners equity
account.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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 © Thomson/South-Western
LESSON 1-3
9
OTHER CASH TRANSACTIONS
page 16
Transaction 10 August 12. Received cash on account from
Oakdale School, $200.00.
Transaction 11 August 12. Paid cash to owner for personal use,
$125.00.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3
10
TERMS REVIEW
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page 17
revenue
sale on account
expense
withdrawals
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 1-3