1	BUSINESS TRANSACTIONS Introduction to Principles of Accounting
2	BALANCE SHEET EQUATION
3	Mnemonic for Balance Sheet Equation (or Accounting Equation)
4	Assets Provide Future Benefits Cash will be used to buy things later Accounts Receivable (AR) collections will provide cash in the future Supplies will be used in the business later Inventory will be sold eventually Prepaid Rent will provide space in the future Prepaid Insurance will provide protection Property, plant and equipment will be used
5	Liabilities Are Debts Accounts Payable (AP) are owed to suppliers Accrued Expenses are owed to other businesses Taxes Payable are owed to governments Notes Payable are signed, legal promises to pay creditors (such as a note on a car) Mortgage Payable is a long-term debt to buy property (land), plant (buildings), and equipment
6	Owners’ Equity Initial investment in the firm by the owners Additional investments by owners Withdrawals reduce Owners’ Equity (OE) Revenues increase Owners’ Equity (OE) Expenses decrease Owners’ Equity (OE)
7	Expanded Equation Assets = Liabilities + Owners’Equity + Revenues - Expenses
8	ENTITY CONCEPT The business is separate from the owners The owner’s personal dealings are NOT business expenses Personal expenditures paid by the business are withdrawals by the owner Withdrawals reduce Owners’ Equity (OE)
9	TRANSACTIONS ARE EXCHANGES
10	TRANSACTIONS Transactions are exchanges between the business and others One side of the transaction may be a “promise to pay” later Promises to pay may be exchanged for cash, goods or services But there MUST be an exchange for there to be a transaction
11	Promises to Keep Hiring new employees is a promise to pay them after they provide a service So merely hiring an employee is NOT an transaction because there is no exchange Employees only get paid AFTER working
12	More Promises Customer questions are NOT transactions Even customer orders are NOT transactions Revenue transactions only result when goods are shipped or services are provided
13	SUPPLIES
14	VERY GOOD!
15	CUSTOMER ORDER
16	CORRECT!
17	SUMMARY Assets provide future benefits Liabilities are debts Owners’ Equity represents the financial interest of the owners Revenues result from the sale of goods or providing services to customers Expenses are costs of doing business Transactions involve exchanges
18	CATAGORIZE ITEMS