Under the double-entry accounting system, when a financial transaction occurs, it affects at least two accounts. This is demonstrated by looking at the basic accounting equation or the expanded accounting equation and conducting a transaction analysis using these equations. The expanded accounting equation is particularly helpful because it allows us to see the effect when the transaction involves revenues and/or expenses, as well as transactions that affect owner’s capital or owner’s withdrawals.
Basic Accounting Equation:
Assets = Liabilities + Owner’s Equity
Expanded Accounting Equation:
Assets = Liabilities + Owner’s Capital – Owner’s Withdrawals + Revenues – Expenses
Using the Transaction Analysis Table which depicts the expanded accounting equation, identify the effect that each of the six (6) transactions has on the equation. For each transaction, indicate in a cell on the table whether it is an increase or a decrease to that category and indicate the amount of money.
Please note: The first transaction has been completed for you as an example so you only need to complete the analysis for transactions 2 through 6. (File attached)