Business Transactions Chapter 1, Unit 2

Business Transactions What is a transaction? A transaction is an event that occurs during the operation of a business that results in a financial change. What is an example of a business transaction? Brainstorm with classmates; try to think of at least 5! Something of value is given. Something of value is received. Transaction

Impact of Transactions Every business transaction impacts financial accounts A minimum of two accounts must be impacted by every transaction For example, a company purchases office supplies with cash Effect is to increase the dollar value of the Office Supplies account and to decrease the value of the Cash account

Analyzing a Transaction There are four questions that you need to ask yourself to help you analyze a transaction Which items (or accounts) change in value as a result of the transaction? How much (dollar value) do the accounts change? Do the accounts increase or decrease in value? After the change is recorded, is the fundamental accounting equation still in balance? Check by looking at the types of accounts impacted (A/L/OE) If both accounts are on the SAME side of the balance sheet, one must increase and the other must decrease If the two accounts are on OPPOSITE sides of the balance sheet, then they both must increase or decrease

Practice makes perfect! Complete the Business Transactions practice sheet 10 business transactions – the first is partially completed for you 2 of the transactions (in italics) involve 3 accounts Identify the accounts affected, whether the accounts are A / L / OE and if the accounts increase / decrease When you are finished, compare your answers with a partner Hand in your transactions before the end of class!