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Balance Sheet Transaction Analysis
In this section, we will look the affect of a transaction on the accounts of a business. A transaction occurs when there is an exchange of things of economic value. For example when a business buys a piece of land for cash then there is a transaction. Something of value, the land has been gained and something of equal value has been given up, cash.
Let us look at the affects of a transaction on the Accounting Equation.
In this example, the business pays a creditor $100. The chart below demonstrates the affects on the various accounts.
|
Assets = |
Liabilities |
+ Owner’s Equity | ||||
|
Cash |
Office Supplies |
Land |
Building |
Accounts Payable |
Mortgage Payable |
J. Owner, Capital |
|
1 000 |
500 |
2 000 |
12 500 |
600 |
8 400 |
7 000 |
|
- |
|
|
|
- |
|
|
|
900 |
500 |
2 000 |
12 500 |
500 |
8 400 |
7 000 |
|
15 900 = |
8 900 |
+ 7 000 | ||||
In this example, we see that the Cash decreases by $ 100, but also that the Accounts Payable decreases by the same amount. After we have analyzed the transaction the accounting equation still holds true that Assets = Liabilities + Owner’ Equity. For further types of transactions please review this slide show.
