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ABS Accounting

How to Analyze Transactions

The first step in any accounting process is to analyze the financial transactions (or economic events). A Transaction is an event that affects the financial position of a business. The accounting equation must remain in balance after each transaction has been analyzed, so an accountant or business owner must understand how the transaction affects the owner’s equity, assets and liabilities before entering the transaction.

Here are the steps to analyze a financial transaction.

  1. Identify the accounts and the account type
  2. Decide if each account increases or decreases
  3. Determine if the accounting equation is in balance