Chapter 2 - Analyzing business transactions. After reading this chapter, you should be able to: Record in equation form the financial effects of a business transaction; define, identify, and understand the relationship between asset, liability, and owner’s equity accounts; analyze the effects of business transactions on a firm’s assets, liabilities, and owner’s equity and record these effects in accounting equation form; prepare an income statement. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing Business Transactions Section 1: Property and Financial Interest Chapter 2 Section Objectives 1. Record in equation form the financial effects of a business transaction. 2. Define, identify, and understand the relationship between asset, liability, and owner’s equity accounts. Steps to analyze the effect of a business transaction 1. Describe the financial event. Identify the property. Identify who owns the property. Determine the amount of increase or decrease. 2. Make sure the equation is in balance. Property (asset) = Financial Interest (creditors and owners) QUESTION: What are assets? Assets are property owned by a business. ANSWER: Define, identify, and understand the relationship between asset, liability, and owner’s equity accounts Assets, Liabilities, and Owner’s Equity Objective 2 QUESTION: What are liabilities? Liabilities are debts or obligations of a business . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing Business Transactions Section 1: Property and Financial Interest Chapter 2 Section Objectives 1. Record in equation form the financial effects of a business transaction. 2. Define, identify, and understand the relationship between asset, liability, and owner’s equity accounts. Steps to analyze the effect of a business transaction 1. Describe the financial event. Identify the property. Identify who owns the property. Determine the amount of increase or decrease. 2. Make sure the equation is in balance. Property (asset) = Financial Interest (creditors and owners) QUESTION: What are assets? Assets are property owned by a business. ANSWER: Define, identify, and understand the relationship between asset, liability, and owner’s equity accounts Assets, Liabilities, and Owner’s Equity Objective 2 QUESTION: What are liabilities? Liabilities are debts or obligations of a business ANSWER: Owner’s equity is the term used by sole proprietorships. It is the financial interest of an owner of a business. It is also called proprietorship or net worth ANSWER: Liabilities and Equity What is owner’s equity? QUESTION: QUESTION: What is a Balance Sheet? A balance sheet is a formal report of the financial position of a business on a certain date. It reports the assets, liabilities, and owner’s equity of the business ANSWER: Liabilities – the amount owed to the creditors Assets – the amount and types of property owned by the business Equity – the owner’s interest Analyzing Business Transactions Section 2: The Accounting Equation and Financial Statements Chapter 2 Section Objectives Analyze the effects of business transactions on a firm’s assets, liabilities, and owner’s equity and record these effects in accounting equation form. Prepare an income statement. Prepare a statement of owner’s equity and a balance sheet. In accounting terms the firm’s assets must equal the total .
