Definition and Explanation:
Analysis of business transactions means observing the change in financial position of the business because of business transactions. Different business transactions make changes in financial position of a business concern. A change in financial position means change in one or more of the five basic elements of accounting. The five basic elements of accounting are:
Now let us see how the analysis of various business transactions is made. Consider the following example for this purpose: Example: Transaction No. 1 Mr. R invests $200,000 to commence his business. Analysis: Two changes have taken place because of this transaction:
He opens current account with bank and deposits $60,000. Analysis: This transaction has brought two changes:
He borrows $100,000 from Mr. S at 12% per annum. Analysis: The two changes are:
He purchases furniture worth $40,000 for cash. Analysis: The two changes are:
He purchases goods (saleable goods) from Mr. A for $50,000 and paid cash $30,000. Analysis: There are three changes in this business transaction:
Transaction No. 6: He sells goods for cash $18,000. Analysis: There are two changes:
He sells goods for $10,000 to Mr. N on credit basis: Analysis: The two changes are:
He purchases stationary for $6,000. Analysis: These two changes are:
He purchases a weighing scale and a safe for $20,000 and pays by check: Analysis: The two changes are:
He pays $12,000 to Mr. A on account. Analysis: Mr. A is creditor (a liability) of the business for $20,000 and now $12,000 have been paid to him and the balance of $8,000 is still payable to him. The two changes are:
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