Describe The Effect Of Each Transaction

Describe the effect of each transaction on assets, liabilities, and stockholders’ equity: Business transactions are the core of what accounting is. Transactions are events that have a monetary impact on the financial statements of an organization. These transactions can be internal, like when a company produces and sells a product, or external, like when a company borrows money from a bank. Depending on the type of transaction, it will affect different areas of the financial statements. According to Ullah et al. (2020), transaction analysis is the process of identifying economic events, recording them, and classifying them as transactions. This information is then used to prepare financial statements. The goal of transaction analysis is to ensure that all transactions are properly accounted for in the financial statements.

 There are a variety of different types of transactions, but they can generally be classified into four categories. The first category is asset transactions which comprises of the transactions that involve the acquisition or disposition of assets (Ullah et al., 2020). There are also liability transactions that involve the acquisition or disposition of liabilities. On the other hand equity transactions are transactions that involve the issuance or repurchase of equity instruments. Revenue and expense transactions involve those that result in revenue or expenses.

Asset Transactions: Asset transactions are events that result in a change in the company’s assets. Assets are economic resources that are owned by the company and have future economic value. The most common types of asset transactions are stated as follows. Investments: When a company acquires or disposes of an investment, it is classified as an asset transaction. Investments are typically long-term, and they are recorded at their fair value. The next form of asset transaction is acquisitions: When a company acquires another company or assets, it is classified as an asset transaction. The acquired company or assets are typically recorded at their fair value. There are also dispositions: When a company disposes of assets, it is classified as an asset transaction. The disposal of assets is typically recorded at their fair value.

Liability Transactions: Liability transactions are events that result in a change in the company’s liabilities. Liabilities are obligations of the company that arise from past transactions or events and have future economic value. The most common types of liability transactions are stated as follows. Borrowings: When a company borrows money from a bank or other financial institution, it is classified as a liability transaction. The borrowed money is typically recorded as a long-term liability. Repayments: When a company repays a loan, it is classified as a liability transaction. The repayment of the loan is typically recorded as a reduction in the long-term liability. Equity issuance: When a company issues equity instruments, it is classified as a liability transaction. The issuance of equity is typically recorded as an increase in the company’s equity.

Equity Transactions:Equity transactions are events that result in a change in the company’s equity. Equity is the portion of the company’s assets that are owned by the shareholders. The most common types of equity transactions are: Issuance of shares: When a company issues new shares, it is classified as an equity transaction. The issuance of new shares is typically recorded as an increase in the company’s equity. Repurchase of shares: When a company repurchases its own shares, it is classified as an equity transaction. The repurchase of shares is typically recorded as a reduction in the company’s equity. Dividends: When a company pays dividends to its shareholders, it is classified as an equity transaction. The payment of dividends is typically recorded as a reduction in the company’s equity.

 

Revenue and Expense Transactions: Revenue and expense transactions are events that result in a change in the company’s revenue or expenses. Revenue is the income that a company earns from its business activities, and expenses are the costs associated with those activities. The most common types of revenue and expense transactions are: Sales: When a company sells products or services, it is classified as a revenue transaction. The sale of products or services is typically recorded as an increase in the company’s revenue. Cost of goods sold: When a company incurs costs associated with the sale of products or services, it is classified as an expense transaction. The cost of goods sold is typically recorded as a reduction in the company’s revenue (Ullah et al., 2020). Operating expenses: When a company incurs costs associated with its business operations, it is classified as an expense transaction. Operating expenses are typically recorded as a reduction in the company’s revenue.

Reference

Ullah, A., Pinglu, C., Ullah, S., Zaman, M., & Hashmi, S. H. (2020). The nexus between capital structure, firm-specific factors, macroeconomic factors and financial performance in the textile sector of Pakistan. Heliyon, 6(8), e04741. https://doi.org/10.1016/j.heliyon.2020.e04741

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