Effect of business transactions to

Accounting Equation
Simple accounting equation
Expanded accounting equation

Assets = Liabilities + Owner Equities

Capital + Revenues –
Assets = Liabilities + Expenses - Drawings
Effect of business transactions to
accounting equation
As business transactions happened, the effect
(increase or decrease) of the transactions on
accounting equation are evaluated.
Example 1:
Bought a furniture by cash RM200

Assets = Liabilities Capital

+ 200
Furniture = 0 0

-200
Cash
Example 2:
Bought a computer by credit RM2000

Assets = Liabilities Capital

+ 2000 + 2000
Office = Account Payable 0
Equipment
Example 3:
Purchase inventory by credit RM1000

Assets = Liabilities OE
(capital + income –
expenses – drawings)

0 = +1000 -1000
Account Purchases (expenses)
Payable
Example 4:
Sold inventory by cheque RM1000

Assets = Liabilities OE
(C+I-E-D)

+1000 = 0 +1,000
Bank Sales (Income)
Example 5:
Sold inventory by credit RM1000

customer

Assets = Liabilities OE
(C+I-E-D)

+1000 = 0 +1,000
Account Sales (income)
Receivable
Example 6:
Bank in cash RM5000

Assets = Liabilities Capital

-5000
Cash = 0 0

+5000
Bank