Changes to the Balance Sheet

Changes to the Balance Sheet

Key Things To Know

A transaction is an exchange of one thing for another.

At least two items always change.

First step:
Determine the common names of what changes with each transaction.

Second step:
Quantify the economic impact of the change (dollar amount)

The Accounting Equation:

Assets = Liabilities +  Owner’s Equity
Have    =       Owe    +   Own (Includes Profits & Losses)

The balance sheet also changes when the accounting equation changes.
Answer the following questions to determine the accounts that change in the accounting equation.

1) What does the company have more or less of?
Changes an Asset

2) Does the company owe more or less?
Changes a Liability

3) Was there an exchange that involved the owners?
Changes Owner’s Equity

Refer to the common names you learned in the balance sheet section to determine which particular asset, liability or owner’s equity account changes.
Use the proper common name for each item that changes.

5 common business transactions that change items reported on the balance sheet:

1) Receive cash from investors

2) Receive an asset and pay cash

3) Trade an asset for another asset (that is not cash)

4) Receive an asset and pay in the future (incur a liability)

5) Pay cash to reduce what is owed (a liability)