Analyzing Transactions

Select the most correct answer,  leave no question unanswered.

🧠 Step-by-Step: How to Analyze Transactions for Journal Entry

1. 🔍 Identify What Happened

Start by reading the transaction carefully. Ask:

• What did the business give?
• What did the business receive?
• Is this a cash transaction or credit?
• Does it affect assets, liabilities, equity, revenues, or expenses?

Example: “Paid $500 cash for office supplies.”

2. 📂 Select the Appropriate Accounts

Use the five major account types to classify each part of the transaction:

In our example:

• “Cash” is an Asset
• “Supplies” is also an Asset

3. 🔄 Determine Increase or Decrease

Use this rule:

• Debits increase assets and expenses
• Credits increase liabilities, equity, and revenue
• The opposite side decreases the account

In our example:

• Supplies (Asset) ↑ → Debit Supplies $500
• Cash (Asset) ↓ → Credit Cash $500

4. 📝 Record in the General Journal

Date Account Titles and Explanation Debit Credit 2025-09-08 Supplies 500 Cash 500 (Purchased office supplies with cash)

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🧩 Quick Tips for Students

• Always use at least two accounts per transaction (double-entry system)
• Debits must equal credits
• Use plain logic: What did the business gain or lose?
• Think in terms of resources and obligations