Business Transaction and Accounting

2 Equation

Objectives:
 Understanding to the business transaction
 Understanding to the accounting equation
 Analyzing to the effect of business transaction to
the accounting equation
A. The Definition of Business Transaction

 A business transaction is an economic event that

has some effect on the resources of a firm or on
the sources of a firm’s assets
 These business transactions will effect to the
financial condition of the company and they
must be recorded by a company
 Classification of the
business transaction
 A business transaction can be classified into 2
(two) groups:
a. External transaction
b. Internal transaction
 External transaction is concerned with an
external party of the company
 Internal transaction is an economic event that
occurred in this company
 For example
 External transaction: purchase raw
materials, payment of salaries expenses,
payment building rent expenses, etc
 Internal transaction: using of supplies,
allocating cost of using fixed assets, to
recognize an expense not previously
recorded (like salaries payable), etc
All of these transactions will effect to three
components of accounting equation, that are
assets, liabilities, and equities

 A transaction business will give an effect to at

least two components of the accounting
equation
 For example: An increase of assets will effect to:
 Decrease of other asset, or
 Increase of the liability, or
 Increase of the equity
B. Accounting Equation

 Accounting equation describes the

relationship among assets, liabilities, and
owners’ equity or capital
 It is the relationship on which all accounting
is based
 It can be shown as an equation

Assets = Liabilities + Owners’ Equity (Capital)

 Assets is the resources of
a firm
 They are acquired by a firm to aid in
accomplishing its goals
 They give an economic benefits in the
future time
 Liabilities are Called
Creditors’ Equities
 Liabilities are an interest of the
creditors in the assets
 Liabilities comes from purchasing
assets, borrowing money, etc
 Owners’ Equities are
Called Capital
 Owners’ equities are an interest of the
owners in the assets of a firm
 Owners’ equities = Assets – Liabilities
 We can conclude that total assets of a firm
will be creditors’ claim and owners’ claim
 Owners’ claim is the rest of creditors’ claim
C. Transaction Analysis

Transaction 1
 Acquiring assets from the owner
Mr. Airlangga invests his money to the firm
Rp. 300.000.000,-
(in Rp. 000,-)

Assets = Liabilities + Owner’s Equity

Cash = + Airlangga’s
Capital
300.000 -0- + 300.000
Transaction 2
 Acquiring assets from creditors
Mr. Airlangga applies for a loan at Bank BCA
because he doesn’t think that Rp. 300.000.000
will be enough to carry on his business
(in Rp. 000,-)
Assets Liabilities Owners’ Equity
= Notes + Airlangga’s
Cash Payable Capital
300.000 = -0- + 300.000
150.000 = 150.000 + -0-