Unit 2 – Business Transactions

Business Transaction

• is an exchange of things of value.

• Accounting Period: the length of time between the preparation of financial reports.– Time varies (one month to one year…depends on business

size and the need for data)

Transaction Analysis Sheet

• will be used to assist in the examination of transactions and their effects on the balance sheet.

• Put in equation form A = L + OE

• These analysis sheets are not used in business but knowing the technique will improve your understanding.

Example: Metropolitan Movers

Balance Sheet Form

Example: Metropolitan Movers

Transaction Analysis Sheet Form (Equation)

How to Analyze a Transaction?

1) Which items change in value as a result of the transaction? (at least 2 must change in value to keep the equation in balance)

2) How much do the items change?

3) Do the items increase or decrease in value?

4) After the change is recorded, is the equation still in balance?

Transaction #1

• Metropolitan Movers pays $1 200 cash to Mercury Finance.

Transaction #2

• K. Lincoln, who owes Metropolitan Movers $2 500, pays $1 100 in partial payment of the debt.

What changes will have to be made to the equation analysis sheet?

Transaction #2

• K. Lincoln, who owes Metropolitan Movers $2 500, pays $1 100 in partial payment of the debt.

Transaction #3

• Equipment costing $1 950 is purchased for cash.

• What changes will have to be made to the equation analysis sheet?

Transaction #3

• Equipment costing $1 950 is purchased for cash.

New Balance Sheet

• After the last transaction for the accounting period (the length of time between the preparation of financial reports), a new balance sheet must be made utilizing the new ending balances.

• Again…The Left Side = The Right Side (Balance)– If not, you’ve done something wrong.

More Examples

• Goldman’s Gym Examples– (p.16 -19)

Apply your knowledge!

• Page 21-24 (#9-14)