Week 2 — The Accounting Equation and Transaction Analysis

Why this matters

A nursing student opening a home-care business and a mechanic running a repair shop both need to see what the business has, what it owes, and what its owners keep. The accounting equation shows all three after every sale.

In plain language

Every business has things it owns and bills it owes. This week you learn the one line accountants use to keep track of both, the accounting equation (a balance that says everything a business has was supplied either by people it owes or by its owners). You will sort a business's belongings into assets (what it has), liabilities (what it owes), and stockholders' equity (the owners' share of what is left). Then you will follow a small bicycle shop through its first month, from a $30,000 investment on Day 1 to a $500 dividend on Day 30, across 12 events, and watch the equation stay balanced after every single one. By the end, you will be able to read any simple business event and say what it changed.

• Already covered: Week 1 set out what financial accounting is for, who uses it, who sets its rules, and the three forms of business, and it introduced the running case.
• This week: the accounting equation and transaction analysis, worked on the running case's first twelve transactions.
• How they connect: Week 1 said a corporation is an entity separate from its owners; this week that separation decides what goes into the shop's books.
• Where we're going next: Week 3 records these same twelve transactions with debits and credits in a journal and checks them with a trial balance.

Focus

What does a business have, who has a claim on it, and how does each transaction keep the two in balance?

By the end of this module, you should be able to:

• [ ] sort accounts into assets, liabilities, and stockholders' equity
• [ ] keep Assets = Liabilities + Stockholders' Equity in balance after each transaction
• [ ] name what raises and lowers retained earnings
• [ ] analyze a transaction with the four questions

To-do

Plan your week

1. Read Chapter 2 (~35–45 minutes), then the lecture and slides.
2. Work the lecture tutorial (60–90 minutes).
3. Do the practice exercises (15–25 minutes).
4. Do the Accounting Workshop (about 90 minutes), discussion, and assignment.
5. Take the quiz.

This week's checkpoint: analyze one transaction and show the equation still balances.

You've got this

Take it in order, and ask your instructor early if stuck.

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