Effects of Business Transactions in the assets, liabilities and capital accounts

Effects of Business Transactions in the Assets, Liabilities and Equity 

Remember that a business transaction is exchange of values.  These values are reciprocal to each other and they are the agents which bring about the effects in the assets, liabilities and capital accounts.

Note that in analyzing business transactions or events it is important not just identifying the values received and parted with and discerning its monetary measurement, but also determining their connections with, or relations to the changes or effects that will lead to or result in the state, position or condition of the assets, liabilities and capital accounts.

Meaning, the bookkeeper must also determine the changes or effects in the accounts. These changes or effects may be an increase or decrease to an accounting element, to wit:

• Increase in an Asset and Increase in a Liability

• Decrease in a Liability and Decrease in an Asset

• Increase in an Asset and Decrease in Another Asset

• Increase in an Asset and Increase in Capital

Illustrations for these effects will be discussed in the next topics/articles. Revisit the discussions on the value received and value parted with to study the recording and JEs of the example transactions.