Accounting BellworkAccounting Bellwork

3rd Hour: Assume that you are a business consultant. A business owner has explained that the business took in revenue of $78,000 last year and had expenses of $42,000. The owner withdrew $54,000 for personal use. The business started the year with owner’s equity of $20,000. The owner is having trouble paying business expenses. Analyze possible problems and what you should say to the business owner.

Accounting Bellwork AnswerAccounting Bellwork Answer$78,000 Revenue

-42,000 Expenses

36,000 Profit

+20,000 beginning Owners Equity

56,000 Total Assets

-54,000 Personal Withdrawal

2,000 Profit

The owners could be withdrawing to much money for personal use.

Plans for Today

• Grade Homework Ch3-2

• Lecture Ch3-3

• Assign Homework Ch3-3

Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner

Section 3Transactions That Affect Revenue, Expense, and Withdrawals by the Owner

What You’ll Learn

How revenue transactions affect the accounting equation.

How expense transactions affect the accounting equation.

How withdrawals by the owner affect the accounting equation.

What You’ll Learn

How revenue transactions affect the accounting equation.

How expense transactions affect the accounting equation.

How withdrawals by the owner affect the accounting equation.

Why It’s Important

The experience you gain by analyzing

revenue, expense, and withdrawal

transactions will help you analyze

transactions in real-world situations.

Why It’s Important

The experience you gain by analyzing

revenue, expense, and withdrawal

transactions will help you analyze

transactions in real-world situations.

Key Terms

revenue

expense

withdrawal

Key Terms

revenue

expense

withdrawal

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue and Expense TransactionsRevenue and Expense Transactions Income earned from the sale of

goods or services is revenue.

An expense is the price paid for goods or services used to operate a business.

They are both classified as a capital account that effect owners equity.

Income earned from the sale of goods or services is revenue.

An expense is the price paid for goods or services used to operate a business.

They are both classified as a capital account that effect owners equity.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

For the following examples, use the accounts given to you yesterday for Road Runner Delivery Service.

LIST OF ACCOUNTSAssets

Cash in Bank

Accounts Receivable

Computer Equipment

Office Equipment

Delivery Equipment

Assets

Cash in Bank

Accounts Receivable

Computer Equipment

Office Equipment

Delivery Equipment

=Liabilities

Accounts

Payable

=Liabilities

Accounts

Payable

+ Owner’s Equity

Maria Sanchez,

Capital

+ Owner’s Equity

Maria Sanchez,

Capital

Revenue TransactionRevenue Transaction

Business Transaction 8

ANALYSIS Identify 1. Roadrunner received cash, so Cash in Bank is affected. The payment received is revenue. Revenue increases owner’s equity, so Maria Sanchez, Capital is also affected.

Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.)Revenue Transaction (con’t.)

Business Transaction 8 (con’t.)

Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.

ANALYSIS Classify 2. Cash in Bank is an asset account. Maria Sanchez, Capital is an owner’s equity account.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.)Revenue Transaction (con’t.)

Business Transaction 8 (con’t.)

Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.

ANALYSIS + / – 3. Cash in Bank is increased by $1,200. Maria Sanchez, Capital is also increased by $1,200.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Revenue Transaction (con’t.)Revenue Transaction (con’t.)

Business Transaction 8 (con’t.)

Roadrunner received a check for $1,200 from a customer, Sims Corporation, for delivery services.

ANALYSIS Balance 4. The accounting equation remains in balance.

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $21,850 $0 $3,000 $200 $12,000 $11,650 $25,400

Trans. 8 +1,200 +1,200

Balance $23,050 + $0 + $3,000 + $200 + $12,000 = $11,650 + $26,600

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $21,850 $0 $3,000 $200 $12,000 $11,650 $25,400

Trans. 8 +1,200 +1,200

Balance $23,050 + $0 + $3,000 + $200 + $12,000 = $11,650 + $26,600

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense TransactionExpense Transaction

Business Transaction 9

ANALYSIS Identify 1. Roadrunner pays rent for use of building space. Rent is an expense. Expenses decrease owner’s equity, so the account Maria Sanchez, Capital is affected. The business is paying cash for the use of the building, so Cash in Bank is affected.

Roadrunner wrote a check for $700 to pay the rent for the month.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.)Expense Transaction (con’t.)

Business Transaction 9 (con’t.)

Roadrunner wrote a check for $700 to pay the rent for the month.

ANALYSIS Classify 2. Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.)Expense Transaction (con’t.)

Business Transaction 9 (con’t.)

Roadrunner wrote a check for $700 to pay the rent for the month.

ANALYSIS + / – 3. Maria Sanchez, Capital is decreased by $700. Cash in Bank is decreased by $700.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Expense Transaction (con’t.)Expense Transaction (con’t.)

Business Transaction 9 (con’t.)

Roadrunner wrote a check for $700 to pay the rent for the month.

ANALYSIS Balance 4. The accounting equation remains in balance.

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $23,050 $0 $3,000 $200 $12,000 $11,650 $26,600

Trans. 8 – 700 – 700

Balance $22,350 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,900

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $23,050 $0 $3,000 $200 $12,000 $11,650 $26,600

Trans. 8 – 700 – 700

Balance $22,350 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,900

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner

If a business earns revenue, the

owner will take cash or other assets from

the business for personal use. This

transaction is called a withdrawal.

Withdrawals by the Owner

If a business earns revenue, the

owner will take cash or other assets from

the business for personal use. This

transaction is called a withdrawal.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)

Business Transaction 10

ANALYSIS Identify 1. A withdrawal decreases the owner’s claim to the assets of the business, so Maria Sanchez, Capital is affected. Cash is paid out, so the Cash in Bank account is affected.

Maria Sanchez withdrew $500 from the business for her personal use.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)

Business Transaction 10 (con’t.)

Maria Sanchez withdrew $500 from the business for her personal use.

ANALYSIS Classify 2. Maria Sanchez, Capital is an owner’s equity account. Cash in Bank is an asset account.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)

Business Transaction 10 (con’t.)

Maria Sanchez withdrew $500 from the business for her personal use.

ANALYSIS + / – 3. Maria Sanchez, Capital is decreased by $500. Cash in Bank is decreased by $500.

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Withdrawals by the Owner (con’t.)Withdrawals by the Owner (con’t.)

Business Transaction 10 (con’t.)

Maria Sanchez withdrew $500 from the business for her personal use.

ANALYSIS Balance 4. The accounting equation remains in balance.

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $22,350 $0 $3,000 $200 $12,000 $11,650 $25,900

Trans. 8 – 500 – 500

Balance $21,850 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,400

Assets = Liabilities + Owner’s Equity

Cash Accounts Computer Office Delivery Accounts Maria Sanchez, in Bank Receivable Equip. Equip. Equip. Payable Capital

Prev. Bal. $22,350 $0 $3,000 $200 $12,000 $11,650 $25,900

Trans. 8 – 500 – 500

Balance $21,850 + $0 + $3,000 + $200 + $12,000 = $11,650 + $25,400

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Demonstration Problem 5

25,000 25,000

25,000 25,200

- - - -

200 200200- - -

-10,000 10,000

15,000 25,200200- -10,000

2,4002,400

15,000 25,2002,600- 10,000 2,400

14,600 25,2002,600- 10,000 2,000

-400 -400

-200200

14,600 25,2002,400 10,000 2,000200

1200 1200

15,800 26,4002,400 10,000 2,000200

-1000 -1000

14,800 25,4002,400 10,000 2,000200

-1000 -1000

13,800 24,4002,400 10,000 2,000200

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Section 3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner (con’t.)

Thinking Critically 1&2

Analyzing Accounting

Problem 3-3

Thinking Critically 1&2

Analyzing Accounting

Problem 3-3

Assignment

Check Your Understanding p60

Assignment

Check Your Understanding p60