BBi2O1 - 2021

Business Transactions
A balance sheet is said to be a snapshot of a business, because its values are subject to frequent changes. These
changes in values are caused by business transactions.
 A business transaction is an event involving an interchange of goods, money or services between two or
more parties.

 Each transaction affects at least 2 accounts.

 For example, if a new truck is purchased for cash, the items affected are: Cash and Truck

 The items are known as ACCOUNTS.

 There are 5 types of accounts – based on the 2 financial statements – The Balance Sheet and Income
Statement

o ASSET
o LIABILITIES
o EQUITY
o REVENUE
o EXPENSE
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TRANSACTIONS
Transaction 1 $1 200 cash is paid to Mercury Finance.

Transaction 2 K. Lincoln, who owes Metropolitan Movers $2 500, pays $1 100 in part
payment.

Transaction 3 Equipment costing $1 950 is purchased for cash.

Transaction 4 A new pick-up truck is purchased at a cost of $18 000. Metropolitan Movers
arranges a loan from Mercury Finance for the purchase price.

Transaction 5 Metropolitan Movers completes a storage service for B. Cava at a price of $1

500. A bill is sent to Cava to indicate the additional amount that Cava owes.

Transaction 6 J. Hoffner, the owner, withdraws $500 for personal use.

Transaction 7 One of the trucks requires an engine adjustment costing $75. The repair is paid
for in cash when the truck is picked up.
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TRANSACTION ANALYSIS SHEET is used to show how transactions affect financial statements. The
beginning balances are copied from them.

ASSETS LIABILITIES OWNER’S EQUITY REVENUE EXPENSE

A/R A/P J.
J. Hoffner,
Cash B. Cava K. Equipment Trucks Central Mercury Hoffnerr, Sales Repairs
Capital
Lincoln Supply Finance Drawings
Beginning 3000 1200 2500 4310 24000 300 15000 19710 3900 54900 36500
balances
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