Describe the balance sheet equation and the dual effects of transactions
THE BALANCE SHEET EQUATION AND DUAL EFFECTS OF TRANSACTIONS
The balance sheet equation provides the analytical framework to understand the effects of transactions and events on the financial statements. The balance sheet equation underlies the recording of transactions and events. It captures the financial statement effects of operating, investing, and financing transactions—three key activities of business firms.
The balance sheet equation shows the equality of assets with liabilities plus shareholders' equity. This equation requires that an entity's assets exactly balance, or offset, an equal amount of financing provided by creditors and owners of the corporation. Total liabilities plus shareholders' equity shows the sources of all the firm's financing, and the assets show how the firm holds or has invested those funds. The balance sheet equation maintains this equality by reporting the financial statement effects of each event and transaction in a dual manner, or what are termed the dual effects of transactions. Any single event or transaction will have one of the following four effects or some combination of these effects:
1 . It increases an asset and increases either a liability or shareholders' equity.
2 . It decreases an asset and decreases either a liability or shareholders' equity.
3 . It increases one asset and decreases another asset.
4 . It increases one liability or shareholders' equity and decreases another liability or shareholders' equity.
You might also like to view...
________ refers to the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use
A) Sole sourcing B) Retailing C) Manufacturing D) Procurement E) Warehousing
Compared to the trait approach, the situational approach ______.
A. suggests leaders need to be fluid not fixed B. is descriptive in nature, making them similar C. defines the key characteristics leaders need to navigate all situations D. views leader openness as more important than intelligence
If Joe experiences success in a difficult situation, his perception of his self-efficacy will tend to:
a. improve b. be undermined c. suffer d. not be impacted
Candace can be described as an ambitious individual. She joined Boulder Distributors as a junior recruiter and wants to climb the corporate ladder to become a team leader in the future. Candace works hard to build up her reputation, makes time to interact with not only her manager but other managers as well, and lets everyone know how passionate she is about working at Boulder. In the context of the Big Five taxonomy, the personality dimension ________ best describes Candace.
A. agreeableness B. neuroticism C. extraversion D. openness to experience E. conscientiousness