Transaction analysis involves collecting transaction data, determining the effects on accounts in the accounting equation, and recording debits and credits in the general journal. A transaction is an event that results in a change to at least one balance sheet item such as an asset, liability, or equity account. The accounting equation of Assets = Liabilities + Equity must be kept in balance by recording equal debits and credits for each transaction.

1. Collects, organizes and processes
transaction data
Transaction is an event that results in a
change of a balance sheet item.
Typically it is an exchange.
(Asset, liability, stock, revenue or
expense for one another.)
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2. Step 1: Accumulate facts.
Step 2: Determine effects on accounting equation
Note: Algebra requires that you keep the equality!
Steps in transaction analysis:
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3. Transaction Analysis
Two or more items will always be affected
Example: (1) Owner invested $10,000 Cash in
exchange for $10,000 of Common Stock
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4. Example: (2) Borrowed $5,000 by issuing a bond.
(2) + $5,000 + $5,000 ________
$15,000 = $5,000 +$10,000
Bonds
Payable
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Transaction Analysis

5. TRANSACTION ANALYSIS examples
 Business buys a computer, paying cash.
Increase and Decrease
 Business provides service to a customer and is paid cash.
Increase and Increases
 Contractor works and business pays cash for service.
Decrease and Decreases
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6. TRANSACTION ANALYSIS examples
 Business applies & gets a corporate credit card account.
 Business takes out an advertisement that runs today in
the newspaper and charges the cost to the credit card.
Increase and Decreases
 Business pays off credit card .
Decrease and Decrease
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7. TRANSACTION ANALYSIS examples
 Business provides services to a customer but allows them
30 days to pay.
Increase and Increases
 30 days later customer pays off amount due in full.
Increase and Decrease
 Business pays cash dividend to Owners.
Decrease and Decreases
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8. Lowest level of detail in accounting.
Records increases and decreases for a
specific Asset, Liability, or Stockholders’
Equity item.
Number of accounts used depends on facts
and personal desires of the accountant &
management.
How much detail do they want on
the financial statements?
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Account is . . . .

9. Account Detail example
Consider the options in accounts used to record the
purchase of an Apple computer:
1. Equipment.
If used, other computers, printers, photocopiers, factory
machines all will be grouped into one account.
2. Office Equipment.
If used, other computers, printers, photocopiers will be
grouped here, but factory machines go in a different
account.
3. Computer related equipment
If used, other computers and printers will be grouped
here, but photocopiers, factory machines go in
different accounts.
4. Apple Computers and so on.
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10. Note: Its easier to add up accounts to get a
grouped total than it is to split out what has
been grouped in a single account.
Stockholder’s equity has accounts for:
- Stock
- Retained earnings (from previous years)
Also temporary, current year only accounts:
- Dividends (paid in current year)
- Revenues (earned in current year)
- Expenses (incurred in current year)
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Account

11. Account Implementation: TABULAR summary format
(Not used in the business world.)
Example: Cash in checking
+50.00
+100.00
- 20.00
+60.00
- 30.00
+250.00
+300.00
+500.00
- 15.00
+10.00
balance +1205.00
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12. Account Implementation: ACCOUNT form (aka T-Account)
ACCOUNT NAME
Debit Side (Dr.) Credit Side (Cr.)
means LEFT means RIGHT
CASH IN CHECKING
50.00
100.00
60.00
250.00
300.00
510.00
20.00
30.00
15.00
Example:
1270.00
BALANCE 1205.00
65.00
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13. ACCOUNT NAME
Date Reference or Description Debit Credit Balance
Account Implementation: Running balance format.
Not in text
9/15 Cash sale 100.00 100.00dr
9/16 Pay bill 70.00 30.00dr
9/17 Buy supplies 40.00 10.00cr
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14. - Algebra is the foundation.
- The accounting equation:
ASSETS = LIABILITIES + EQUITY .
EXPENSES REVENUES
debit credit
+ -
debit credit
- +
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debit credit
+ -
debit credit
- +
debit credit
- +
+ means increase balance
- means decrease balance
Accounting Mathematics

15. Algebra requires that you must keep the equality:
Example: 10 = 6 + 4
10 + 1 = (6 + 4) + 1
or 10+1-1= 6 + 4
Same rule in accounting states that we must use the
‘double entry’ system. This requires that:
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EACH TRANSACTION MUST BE
RECORDED SO THAT TOTAL
DEBITS EQUALS TOTAL
CREDITS.

16. Step 1: Accumulate facts.
Step 2: Determine effects on accounting
equation
STEP3: Determine accounts and amounts
of required debits and credits.
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Steps in transaction analysis:

17. TRANSACTION ANALYSIS REVISTED
 Owner’s Invest $10,000 in business and are issued stock.
Debit and Credit
 Business borrows $5,000 from a bank by issuing a bond.
Debit and Credit
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18. TRANSACTION ANALYSIS REVISTED
 Business buys a computer, paying cash.
Debit and Credit
 Business provides service to a customer and is paid cash.
Debit and Credit
 Contractor works and business pays cash for service.
Debit and Credit
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19. TRANSACTION ANALYSIS REVISTED
 Business applies & gets a corporate credit card account.
Not a transaction. No effect on accounting equation.
 Business takes out an advertisement that runs today in
the newspaper and charges the cost to the credit card.
Debit and Credit
 Business pays off credit card .
Debit and Credit
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20. TRANSACTION ANALYSIS REVISTED
 Business provides services to a customer but allows them
30 days to pay.
Debit and Credit
 30 days later customer pays off amount due in full.
Debit and Credit
 Business pays cash dividend to Owners.
Debit and Credit
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21. General Journal - Book used to
record transactions before recording
them in the accounts.
- Listing of transactions by date.
General Ledger - Binder of all the
accounts. (T or ledger format)
- Table of contents to the general ledger is
called the “Chart of Accounts”
Information ends up being recorded
twice. It’s just organized differently.
Process of copying transactions from
journal to ledger is called POSTING
JOURNAL
LEDGER
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The BOOKS in accounting

22. What did we buy?
Example: Use of ledger and journal
CASH IN CHECKING
50.00
100.00
60.00
250.00
300.00
510.00
50.00
15.00
1000.00
1270.00 1065.00
Look at journal entry
Date Accounts Debits Credits
9/12 Computers 700.00
Supplies 300.00
Cash 1000.00
(Purchased Laser printer & toner cartridges from Office Depot)
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23. Steps 1, 2, 3: Accumulate facts, determine effects on
accounting equation, accounts to be used, debits and credits
Step 4: Journalize (usually done daily)
Step 5: Post to Ledger (often batched, daily or weekly)
Step 6: Total all accounts in ledger and check math for errors.
Total Debits = Total Credits (called trial balance).
Debit Credit
Cash 100
Equipment 500
Accounts Payable 200
Retained Earnings 400
Revenue 200
Wage Expense 200
800 800
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Steps in transaction analysis:

24. Example: Assume the following 10/1/2014 ledger balances:
Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
• 10/3 Earned $300 in fees, terms net 30 days.
• 10/10 Received $100 payment on account from customers.
• 10/20 Earned $400 in fees. Cash received from customers.
• 10/31 Paid rent of $200.
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25. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
• 10/3 Earned $300 in fees, terms net 30 days.
General Journal
10/3 Receivables 300
Fee Revenue 300
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26. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
• 10/10 Received $100 payment on account from customers.
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
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27. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
• 10/20 Earned $400 in fees. Cash received from customers.
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
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28. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
• 10/31 Paid rent of $200.
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
10/31 Rent Expense 200
Cash 200
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29. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
10/31 Rent Expense 200
Cash 200
300
300
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30. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
10/31 Rent Expense 200
Cash 200
300
300
100
100
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31. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
10/31 Rent Expense 200
Cash 200
300
300
100
100
400
400
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32. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
General Journal
10/3 Receivables 300
Fee Revenue 300
10/10 Cash 100
Receivables 100
10/20 Cash 400
Fee Revenue 400
10/31 Rent Expense 200
Cash 200
300
300
100
100
400
400
200200
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33. Ret Earnings
1200
Cash in Bank
1000
Receivables
200
Fee Revenue Rent Exp
300
300
100
100
400
400
200200
1300 400 1200 700 200
TRIAL BALANCE 10/31/14
Debit Credit
Cash 1300
Receivables 400
Retained Earnings 1200
Fee Revenue 700
Rent Expense 200
1900 1900
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