2017-11-01
342
Three basic questions must be answered when analysing the effects of a business transaction on the accounting equation.
1. What happened? Make certain you understand what has happened
2. What accounts are effected? Identify the accounts that are affected. Classify these accounts as assets, liabilities or owner’s equity.
3. How is the accounting equation effected? Determine which accounts increased or decreased. Make sure that the accounting equation remains in balance after the transaction is ended.
Each transaction effects one or more of the three basic accounting elements. A transaction increases or decreases a specific asset, liability, or owner’s equity account.
Tasks
1. Label each of the following accounts as an asset (A), Liability (L) or Owner’s equity (OE)
| Item | Account | Classification |
| Money in bank | Cash | |
| Office supplies | Supplies | |
| Money owed | Accounts payable | |
| Office chairs | Office furniture | |
| Net worth of owner | ||
| Money taken by owner | ||
| Money owed by customers | Accounts receivable |
2. Using the accounting equation, compute the missing elements.
| Assets | Liabilities | Owner’s equity |
| ……….. = | $24,000 + | $10,000 |
| $25,000 = | $18,000 + | ……….. |
| $40,000 = | ………… + | $15,000 |
3. Define each of the accounting elements.
