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Published byLucas Connolly Modified over 11 years ago
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Identify all items (assets and liabilities) that must be changed and make all necessary changes. Carefully analyze the information given for any transaction. Classify each item affected as an asset or liability. Decide whether each item affected is to be increased or decreased.
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See if the owners equity has changed. Remember the accounting equation. E.g. If assets decrease and liabilities are unchanged, the equation must be balanced by a decrease in owners equity. Generally, if a business is better off after a transaction, owners equity has increased. If a business is worse off, owners equity has decreased.
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Make certain that at least two of the individual items have changed. Note: It is possible for several items-assets, liabilities, or owners equity-to change, but there can never be only one change.
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Make sure that the equation is still in balance. Remember the fundamental accounting equation: A=L+OE
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