Investments by owner increase owners equity Drawings Are withdrawals of cash or

Investments by owner increase owners equity drawings

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Investments by owner increase owner’s equity . Drawings: Are withdrawals of cash or other assets by the owner for personal use . Drawings decrease owner’s equity .
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10/16/2016 5 Owners’ Equity Revenues: Revenues represent the gross increases in owner’s equity from business activities entered into for the purpose of earning income. Revenues may result from sale of merchandise , provision of services , rental of property , or lending money . Expenses: Expenses are decreases in owner’s equity that result from operating the business. They are the cost of assets consumed or services used in the process of earning revenue. Examples: utility expense , rent expense , supplies expense , salaries expense , and advertising expense . Owners’ Equity In summary, subdivisions of Owner’s Equity and the effect of each subdivision on owners’ equity are: 1. Investments by Owner or Capital (+). 2. Drawing (-). 3. Revenues (+). 4. Expenses (-). Revenues and expenses determine if a net income or net loss occurs as follows: a. Revenues > Expenses: Net Income . b. Revenues < Expenses: Net Loss .
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10/16/2016 6 Business Transactions and Transaction Analysis Transactions are the economic events of the enterprise that are recorded. Transactions may be identified as external or internal. External transactions involve economic events between the company and some outside enterprise or party. Internal transactions are economic events that occur entirely within the company. Each transaction must be analyzed in terms of its effect (increase or decrease) on the components of the basic accounting equation. The analysis must identify the specific items affected and the amount of the change (increase or decrease) in each item. Business Transactions and Transaction Analysis Each transaction has a dual effect on the equation . For example, if an individual asset is increased, there must be a corresponding: a. decrease in another asset, or b. increase in a specific liability, or c. increase in owner's equity. A tabular summary may be prepared to show the cumulative effect of transactions on the basic accounting equation. The summary demonstrates that: a. Each transaction must be analyzed in terms of its effect on the three components of the equation, and the specific items within each component. b. The two sides of the equation must always be equal. c. The causes of each change in the owner's claim on assets must be indicated in the owners' equity column.
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  • Fall '16
  • taher refaat
  • Accounting, Generally Accepted Accounting

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