2 Business Transaction and Accounting Equation Objectives: CHAPTER Business Transaction and Accounting Equation 2 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: External transaction 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

Assets = Liabilities + Owners’ Equity (Capital) 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-

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 Cash = Liabilities Notes Payable + Owners’ Equity Airlangga’s Capital 300.000 -0- 150.000