TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS

1. Owner invests cash in the Cash increase because owner invests cash in
business. the business which is an asset. Owner’s interest
in the business increases as represented by an
increase in the capital
2. Owner invests furniture Assets increase because owner withdraws cash
which is an asset. Owner’s interest in the
business decreases because of the withdrawal
as represented by a decrease in capital.

3. Owner withdraws cash for Assets decrease because owner withdraws cash
personal use which is an asset. Owner’s interest in the
business decreases because of the withdrawal
as represented by a decrease in capital.
4. Owner purchases supplies Supplies increase because of the purchase but
using cash cash decreases because of the payment. Since
both are assets, one asset increases while
another asset correspondingly decreases.
5. Owner gets cash refund for Cash decreases because of the refund but
returning damaged supplies supplies increase because of the return. Since
bought on cash both are assets, one asset increases while
another asset correspondingly decreases
EFFECTS OF OWNER’S INVESTMENT/
WITHDRAWAL AND CASH ACQUISITION OF ASSETS (ASSET = EQUITY EFFECT)
EFFECTS OF OWNER’S INVESTMENT/
WITHDRAWAL AND CASH ACQUISITION OF ASSETS (ASSET = EQUITY EFFECT)

TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS

6. Owner purchases Furniture increases because of the purchase
furniture using cash but cash decreases because of the payment.
Since both are assets, one asset increases
while another asset correspondingly
decreases.
7. Owner makes additional Assets increase because the owner invests
cash investments additional cash in the business which is an
asset. Owner’s interest in the business
increases because of the investment as
represented by an increase in capital
8. Owner withdraws Assets decrease because owner withdraws
supplies for personal use supplies from the business which is an asset.
Owner’s interest in the business decreases
because of the withdrawal which is
represented by a decrease in capital.
EFFECTS OF INCOME EARNED AND PAYMENT OF EXPENSES
TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS
1. Rendered services for Assets increase because the owner collects
cash cash as a result of services rendered. Owner’s
equity increases because the business earned
income for services rendered
2. Rendered services on Assets increase because of accounts
credit collectible from the customer which is an
asset as a result of services rendered.
Likewise, owner’s equity increases because
of income earned from service rendered.
3. Paid telephone bill Assets decrease because the owner pays
cash for the telephone bill represents
utilities expense which decreases capital.

(ASSET = EQUITY EFFECT)

EFFECTS OF TRANSACTIONS ON THE ACCOUNTING EQUATION
LEGENDS: INCREASE ( ↑ ), DECREASE ( ↓ ), NO CHANGE (NC)
TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS
1. Owner invests cash. An entity separates and distinct from the owner is
NC created. The cash investment of the owner increases
the assets of the business and the capital of the
owner.
2. Owner invests equipment The equipment increases the assets of the business.
Since this is an investment of the owner, the capital
NC of the owner increases correspondingly.

3. Render services on cash The business earned an income by rendering

services and collecting revenue in cash. The effect in
NC the accounting equation is an increase in cash for
the cash collected and an increase in capital as
revenue increases capital.
4. Render services on credit Assets increase by the amount of revenue expected
to be collected from the customer to whom the
NC services were rendered. Capital also increased since
the rendering of services represents revenue.
5. Collects account in Assets increase as there is cash inflow in the amount
transaction #4 of the collection. However, assets correspondingly
decrease with the amount of the collection as the
NC NC accounts receivable, an asset account, will decrease.
This is because the amount the customer owes has
already been collected.
EFFECTS OF TRANSACTIONS ON THE ACCOUNTING EQUATION
LEGENDS: INCREASE ( ↑ ), DECREASE ( ↓ ), NO CHANGE (NC)

TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS

6. Purchases supplies on credit Supplies increase the assets of the business and the
NC liabilities correspondingly increase as the supplies
were bought on account or credit
7. Return defective supplies Assets decrease with the amount of supplies
NC returned. Liabilities correspondingly decrease as the
returned supplies decrease the amount owed.
8. Pays the supplies bought on Assets decrease because owner withdraws cash
account or credit NC which is an asset. Owner’s interest in the business
decreases because of the withdrawal as represented
by a decrease in capital.
9. Borrows cash issuing a note Cash increases the assets of the business as there is
NC an inflow of cash because the business borrowed
money. Notes payable increase the liabilities of the
business as it represents an obligation on the part of
the business to pay at a future date.
10. Purchase land using cash Land increases the assets of the business but cash
correspondingly decreases due to the payment for
NC NC the purchase of land.
EFFECTS OF TRANSACTIONS ON THE ACCOUNTING EQUATION
LEGENDS: INCREASE ( ↑ ), DECREASE ( ↓ ), NO CHANGE (NC)

TRANSACTIONS ASSETS LIABILITIES OE / SHE ANALYSIS

11. Pays utilities expenses for Payment represents cash outflow decreasing the
the month NC assets of the business. Expenses decrease the capital
as they have the opposite effect on income.

12. Pays the note in full The transaction is a payment of a liability. Since
there is cash outflow representing the payment of
NC the note, assets decrease in the amount of the notes
payable.