Unit # 2 – Business Transactions Miss Jando

Unit # 2 – Business Transactions  What is a business transaction? Exchange of things of value  How do you record? You will be given a transaction analysis sheet to assist you Something is of value is given Something of value is received Transaction

Unit # 2 – Business Transactions  Remember all transactions are analyzed by referring to the Balance Sheet Equation  Assets = Liabilities + Owners Equity Assets are listed on the Left Hand Side (LHS) (of the =‘s sign) and therefore are always increased on this side Liabilities & Owners Equity are listed on the Right Hand Side (RHS) and therefore are always increased on this side

Unit # 2 – Business Transactions  You must know that: Assets (A) = LHS Liabilities (L) & Owners Equity (OE) = RHS  Double Entry Accounting Principle For every accounting transaction, the LHS must equal the RHS Therefore the LHS = RHS

Unit # 2 – Business Transactions  Steps in recording Business Transactions 1.Determine which accounts are affected by the transaction. 2.How much do the accounts change. 3.Decide whether the change is an increase or decrease in the account. 4.Is the Equation still in Balance.

Unit # 2 – Business Transactions  Example # 1 – Asset purchased for Cash July 1 – Purchased new training equipment for $500 cash 1.Which Accounts are Affected? Equipment (A) & Cash (A) 2.How much do the Accounts change by? $500 3.Do they Increase or Decrease Equipment Increases, Cash Decreases 4.Is the Balance Sheet Equation still in balance? Yes

Unit # 2 – Business Transactions  Example # 2 – Asset purchased on credit July 5 – Bought a computer for $750, on credit, from Central Computer Co. 1.Which Accounts are Affected? Office Equipment (A) & Accounts Payable, Central Computer Co (L) 2.How much do the Accounts change by? $750 3.Do they Increase or Decrease? Office Equipment Increases, Accounts Payable, Central Computer Co. Increases 4.Is the Balance Sheet Equation still in balance? Yes

Unit # 2 – Business Transactions  Example # 3 – Cash received by a customer July 10 – Received $3000 cash from P. Diddy (who owed money) 1.Which Accounts are Affected? Cash (A) & Accounts Receivable, P. Diddy (A) 2.How much do the Accounts change by? $ Do they Increase or Decrease? Cash Increases, Accounts Receivable, P. Diddy Decreases 4.Is the Balance Sheet Equation still in balance? Yes