2

Business Transaction and

Accounting Equation

Objectives:
Understanding to the business
transaction
Understanding to the accounting
equation
Analyzing to the effect of business
transaction to the accounting equation

A. The Definition of Business

Transaction
A business transaction is an economic

event that has some effect on the

resources of a firm or on the sources of a
firms assets
These business transactions will effect to
the financial condition of the company
and they must be recorded by a company

Classification of
the business
A business transaction can be classified
transaction
into 2 (two) groups:
a. External transaction
b. Internal transaction

External transaction is concerned with

an external party of the company

Internal transaction is an economic
event that occurred in this company

For example
External transaction: purchase raw

materials, payment of salaries

expenses, payment building rent
expenses, etc
Internal transaction: using of supplies,
allocating cost of using fixed assets, to
recognize an expense not previously
recorded (like salaries payable), etc

All of these transactions will

effect to three components of
accounting equation, that are
assets, liabilities, and equities
A transaction business will give an effect to

at least two components of the accounting

equation
For example: An increase of assets will
effect to:
Decrease of other asset, or
Increase of the liability, or
Increase of the equity

B. Accounting Equation
Accounting equation describes the

relationship among assets, liabilities,

and owners equity or capital
It is the relationship on which all
accounting is based
It can be shown as an equation
Assets = Liabilities + Owners Equity
(Capital)

Assets is the
resources of a firm
They are acquired by a firm to

aid in accomplishing its goals

They give an economic
benefits in the future time

Liabilities are
Called Creditors
Equities

Liabilities are an interest of

the creditors in the assets

Liabilities comes from
purchasing assets, borrowing
money, etc

Owners Equities are

Called
Capital
Owners equities are an interest of the
owners in the assets of a firm
Owners equities = Assets Liabilities
We can conclude that total assets of a
firm will be creditors claim and owners
claim
Owners claim is the rest of creditors
claim

C. Transaction Analysis

Transaction 1
Acquiring assets from the owner

Mr. Airlangga invests his money to the firm

Rp. 300.000.000,(in Rp. 000,-)

Assets

Cash

300.000

Liabilities

+
+

-0-

Owners
Equity
Airlanggas
Capital
300.000

Transaction 2
Acquiring assets from creditors

Mr. Airlangga applies for a loan at Bank BCA

because he doesnt think that Rp. 300.000.000
will be enough to carry on his business
(in Rp. 000,-)

Assets
Cash
300.000
150.000

Liabilities
=
Notes
Payable

=
=

+
+

-0150.000

Owners
Equity
Airlanggas
Capital
300.000
-0-