ACCOUNTING – CHAPTER 3

1. Analyze the effect of business transactions on the basic accounting equation.

Accounting in4 systems: System of

► collecting and

► processing transaction data and communicating financial information to decision-

makers

Rely on process’

- Transactions are economic events that require recording in the financial statements (make
change in A, L, SE)

 Not all activities represent transactions.

 Assets, liabilities, or stockholders’ equity items change as a result of some economic

event.

 Dual effect on the accounting equation: effect on 2 financing items

The process of identifying the specific effects of economic events on the accounting equation.
Debit and Credit Procedures

Double-entry system

 Each transaction must affect two or more accounts to keep the basic accounting
equation in balance.

 Recording done by debiting at least one account and crediting another.

 DEBITS must equal CREDITS.

If Debits are greater than Credits, the account will have a debit balance.