TRANSACTIONS THAT AFFECT

REVENUE, EXPENSE, AND

WITHDRAWALS BY THE OWNER
3.3
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Main Idea
▪ Owner’s equity is changed by revenue, expenses, investments, and withdrawals
▪ How do you think revenue, expenses, investments and withdrawals affect owner’s
equity?
Revenue and investments increase owner’s equity
Expenses and withdrawals decrease it
KEY TERMS
▪ Revenue
▪ Expense
▪ Withdrawal
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Revenue and Expense Transactions
▪ Revenues increase owner’s equity and expenses decrease owner’s equity
▪ Examples of revenue (income earned from the sales of goods and services):
 fees earned for services performed
 cash received from the sale of merchandise
▪ To generate revenue, a business may also incur expenses (costs)
 rent
 utilities
 advertising
 TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Revenue and Expense Transactions

• How would this transaction be

different if Sims Corporation made a
promise to pay (bought on account)?
The Cash in Bank balance would not
change. Accounts Receivable would
increase by $1,200
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Revenue and Expense Transactions
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Revenue and Expense Transactions
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Revenue and Expense Transactions
TRANSACTIONS THAT AFFECT REVENUE,
EXPENSE, AND WITHDRAWALS BY THE
OWNER
Withdrawals by the Owner

▪ An owner can make a withdrawal of cash or other assets from the business

▪ A withdrawal has the opposite effect on owner’s equity than investments:

 Withdrawals decrease assets and owner’s equity

 Investments increase assets and owner’s equity

Withdrawals by the Owner

• What accounting assumption

requires that the business owner’s
withdrawals must be accounted for?
Business entity
Withdrawals by the Owner