Chapter 2-3
Analyzing How Transactions
Affect Owner’s Equity Accounts
RECEIVED CASH FROM SALES
page 38
August 12. Received cash from sales, $295.00.
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SOLD SERVICES ON ACCOUNT
page 39
August 12. Sold services on account to Oakdale School, $350.00.
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Analyzing Transactions 2-3
• Received cash from sales, $400.00
• Revenue makes Owner’s Equity increase.
= Liabilities + Owner’s Equity
Sales
Assets
Cash
Debit
Credit
Debit
Credit
N. Bal
Normal Bal.
400.00
400.00
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Analyzing Transactions
• Sold services on account to Kids Time, $500.00
Assets
= Liabilities + Owner’s Equity
A.R. Kids Time
Debit
Sales
Credit
Debit
Credit
N. Bal
Normal Bal.
500.00
500.00
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Analyzing Transactions --Use the four
questions.
• Received cash on account from Kids Time,
$100.00
Assets
= L + OE
Cash
Debit
N. Bal
$100.00
A.R. Kids Time
Credit
Debit
Credit
N. Bal
$100.00
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Analyzing Expense Transactions
• Expenses decrease owner’s equity.
• The decreases from expenses could be recorded directly
in the Owner’s Equity account.
• But, the OE account would have too many entries.
• Using separate accounts for each helps to keep
information straight.
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Analyzing Expense Transactions
• The owner’s capital account has a normal credit balance.
• Decreases in the owner’s capital account are shown as
debits.
• Therefore, an expense account has a
normal debit balance.
• Expenses are always debited.
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PAID CASH FOR AN EXPENSE
page 40
August 12. Paid cash for rent, $300.00.
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Analyzing Transactions
• Paid cash for rent, $800.00.
• Expenses decrease Owner’s Equity--so an expense account’s
normal balance side is the left side.
= Liabilities + Owner’s Equity
Assets
Cash
Debit
Rent Expense
Credit
Debit
N. Bal
Credit
Normal Bal.
800.00
800.00
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Owner’s Taxable Income
A business owned by one person is called a proprietorship.
• The IRS does not require the proprietorship, itself, to pay
taxes.
• However, the owner must include the net income of the
proprietorship in his or her own taxable income.
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Owner Withdrawals
• Employee salaries are considered an expense that
reduces the net income of a company.
• Owner withdrawals are not considered an expense.
• Withdrawals do not affect the business’s income.
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PAID CASH TO OWNER
FOR PERSONAL USE
page 42
August 12. Paid cash to owner for personal use, $125.00.
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Analyzing Transactions
• Paid cash to owner for personal use, 600.00.
• Withdrawals decrease Owner’s Equity--so a drawing account’s normal
balance is the left side.
= Liab. + Owner’s Equity
Assets
Cash
Debit
Taylor Stalter, Drawing
Credit
Debit
600.00
Normal Bal.
600.00
N. Bal
Credit
• Withdrawals could be recorded directly in the owner’s capital
account. Using a separate Drawing account helps keep information
separate.
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Audit Your Understanding
What two accounts are affected when a business receives
cash from sales?
• Cash and Sales
What two accounts are affected when services are sold on
account.
• Sales and Accounts Receivable
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Audit Your Understanding
What two accounts are affected when a business pays
cash to the owner for personal use?
• Owner’s drawing account and Cash
Are revenue accounts increased on the debit side or
credit side? Explain why.
• Credit side because sales increase owner’s equity
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Audit Your Understanding
Are expense accounts increased on the debit side or credit
side. Explain why.
• Debit side because expenses decrease owner’s equity.
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Work Together, 3-3
On My Website
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