Q16RQ. - Horngren'S Financial And Managerial Accounting

Question

What are the steps used when analyzing a business transaction?

Step-by-Step Solution

Answer

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 1: 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. 

Step 2: 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. 

Step 3: 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.