LESSON 2-3
Analyzing How
Transactions Affect
Owner’s Equity Accounts
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
Analyzing How Transactions Affect
Owner’s Equity Accounts
To avoid a large # of entries businesses summarize
revenue information separately from the other records in
an account called Sales
Revenue/(Sales) increase owner’s equity
The owner’s capital account has a normal credit
balance
Because revenue increases owner’s equity, increases
in revenue are also recorded as credits.
CENTURY 21 ACCOUNTING © Thomson/South-Western
3
RECEIVED CASH FROM SALES
page 38
August 12. Received cash from sales, $295.00.
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1
2
1
4
4
3
3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-3
4
SOLD SERVICES ON ACCOUNT
page 39
August 12. Sold services on account to Oakdale School, $350.00.
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1
2
1
4
3
4
3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-3
Analyzing How Transactions Affect
Owner’s Equity Accounts
To avoid a large # of entries for expenses, businesses
use separate expense accounts to summarize expense
information
Expenses decrease owner’s equity
The owner’s capital account has a normal credit
balance
Because expenses decrease owner’s equity, expenses
have a normal debit balance
Increases in expenses are recorded as debits
CENTURY 21 ACCOUNTING © Thomson/South-Western
6
PAID CASH FOR AN EXPENSE
page 40
August 12. Paid cash for rent, $300.00.
1
2
3
2
4
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1
4
1. Which accounts are affected?
3
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-3
7
RECEIVED CASH ON ACCOUNT
page 41
August 12. Received cash on account from Oakdale School, $200.00.
2
1
1
4
4
3
3
1. Which accounts are affected?
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-3
Analyzing How Transactions Affect
Owner’s Equity Accounts
Withdrawals decrease owner’s equity
Accounting practices account for withdrawals
separately from the capital account. They are recorded
in account titled Owner Name, drawing
Because withdrawals decrease owner’s equity, the
withdrawal account has a normal debit balance
Increases in withdrawals are recorded as debits
CENTURY 21 ACCOUNTING © Thomson/South-Western
9
PAID CASH TO OWNER
FOR PERSONAL USE
page 42
August 12. Paid cash to owner for personal use, $125.00.
2
1
3
4
3
1
2
4
1. Which accounts are affected?
3
2. How is each account classified?
3. How is each classification changed?
4. How is each amount entered in the accounts?
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 2-3