.
Effects of Transactions on Accounting Equation :
1. Transactions Affecting Two Items
○ Increase in Asset, Increase in Liability: e.g., credit purchases
○ Decrease in Liability, Decrease in Asset: e.g., payment to creditors
○ Increase in Asset, Increase in Owner's Capital: e.g., introduction of capital
○ Decrease in Owner's Capital, Decrease in Asset: e.g., drawings
2. Transactions Affecting More Than Two Items
○ e.g., Selling goods for cash: Increases cash, reduces stock, increases capital by profit
amount.
Effects of Transactions on Accounting Equation :
1. Transactions Affecting Two Items
○ Increase in Asset, Increase in Liability: e.g., credit purchases
○ Decrease in Liability, Decrease in Asset: e.g., payment to creditors
○ Increase in Asset, Increase in Owner's Capital: e.g., introduction of capital
○ Decrease in Owner's Capital, Decrease in Asset: e.g., drawings
2. Transactions Affecting More Than Two Items
○ e.g., Selling goods for cash: Increases cash, reduces stock, increases capital by profit
amount.
