Accounting
Chapter 3
Property and Financial Claims

Property: Ownership and Control
o Property
Anything of value that a person or a business owns and therefore controls – you
have a legal right to that item
– Example you paid $600 for a bike. As a result you own the bike
o Property Rights
Buying vs. renting or leasing – rights are different – permenant vs temporary
o Financial Claims
Legal right to an item – measured in dollar amounts
– Example if you paid $600 for the bike you have ownership and 100%
financial claim to the bike vs if you paid $300 for the bike but borrowed $300 you own and have a claim to only 50% of the bike
o Credit
When you buy something and agree to pay for it later – not necessarily the same
as credit cards – it is done frequently in business
o Creditor
The business or person selling you the item(s) on credit – or loaning you the
money
- Example you buy a car for $8000, and you only have $1500. You go to your
bank and get a loan for $6500. You own and control the car, but if you fail to
make payments the bank will “repo” the car (take ownership over)

Financial Claims in Accounting
o Assets
Property or items of value owned by a business
- Examples: Cash, Equipment, Supplies, and Accounts Receivable
o Equity
The accouting term for the financial claims to the business
- Example – Maria Sanchez opened a new delivery business called
Roadrunner Delivery Service. She bought a used truck for $10,000 and she
made a down payment of $3000. The bank loans her the rest. Both Roadrunner
and the bank now have financial equity (claims) to the truck
o Owner’s Equity
Owner’s claims to the business – measured by the dollar amount of the owners
claims to the assets of the business
- Example – Owner’s Equity
o Liabilities
Creditor’s claims to the assets of the business – what we owe our creditors
- Example – Accounts Payable
o Accounting Equation
Assets = Liabilities + Owner’s Equity
- Roadrunner example

Transactions that Affect Owner’s Investment, Cash, and Credit
o Business Transactions
Economic event that causes a change, either an increase or a decrease in Assets,
Liabilities, or Owner’s Equity (The Accounting Equation)
o Account
Subdivision under Assets, Liabilities, or Owner’s Equity. It shows the specific
dollar balance for a specific item – Example Cash in Bank
o Accounts Receivable
Total amount of money owed to a business – money to be received later due to a
sale on credit
– Accounts Receivable is an Asset
o Accounts Payable
Amount owed, or payable to the credits of a business
– Accounts Payable is a Liability

Effects of Business Transactions on the Accounting Equation
o Credit Transactions

On Account
When a business buys an item on credit, it is buying on account
Think Accounts Receivable or Accounts Payable

Transactions that Affect Revenue, Expense, and Withdrawals by the Owner
o Revenue and Expense Transactions

Revenue
Income earned from the sale of goods or services performed and cash is
collected
– Revenues increase Owner’s Equity - it increases the assets of the business

Expense
To generate revenue, businesses must also incur expenses to buy goods,
materials, and services Expense is the costs associated with conducting
buisness
– Example – Rent, Utilities, Payroll
o Withdrawals by the Owner

Withdrawal
If a business earns revenues, the other is able to take cash or other assets out
of the buisness