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Chapter 1: Q16RQ. (page 32)

What are the steps used when analyzing a business transaction?

Short Answer

Expert verified

The steps in analyzing a business transaction are as follows:

  1. Identify the account and type of account,
  2. decide increase or decrease in account. and
  3. determine the balancing of the accounting equation.

Step by step solution

01

Identify the account and type of account

The first step involved in analyzing business transaction is identifying the account involved in the transaction and its type. Each transaction has an impact on a minimum of two accounts.

02

Decide on increase or decrease in account

The second step is to identify whether the balance of the accounts involved in the transaction will increase or decrease after the transaction.

03

Determine the balancing of the accounting equation

The final step in analyzing the business is to determine whether the balances of both sides of the accounting equation are equal.

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Most popular questions from this chapter

Let’s examine a case using Greg’s Tunes and Sal’s Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg’s Tunes: Sal’s Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about.

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