1.  The first increases assets and liabilities by the same amount.

2.  The second increases one asset and decreases another asset by the same amount, leaving total assets unchanged.

3.  The third increases one asset, decreases another asset, and increases a liability, but the total of the two sides of the balance sheet remain equal.

4.  The fourth decreases both an asset and a liability by the same amount, so the total of the two sides remained equal.

·  Each transaction affects at least two items. The third transaction affects more than two items.

·  After a transaction is recorded, the total of the assets side of the balance sheet always equals (or "balances") the total of the liabilities side. This is why the statement is called a balance sheet.

·  The double entry principle is based on each accounting transaction affecting at least two items, and after it is recorded, the total of the assets side of the balance sheet equals the total of the liabilities side. This principle is often called the fundamental accounting equation:


·  If liabilities are claims against assets, then the total amount claimed by all parties cannot be greater that the amount of assets available. In addition, the total claim cannot be less than the amount available because whatever is not claimed by other parties is claimed by the owners. Therefore, the amounts to be claimed (assets) equal the amounts of the claims (liabilities).

·  If liabilities are the source of funds and assets are the form in which these funds are invested, then the amount invested cannot be greater than the funds supplied for investment. In addition, the total invested cannot be less than the amount supplied because all funds are invested. Therefore, the funds invested in various resources (assets) equal the funds supplied (liabilities).

Assets



Cash

4,000


Equipment

2,000


Furniture

5,000


Total Assets


11,000
===== 
Liabilities



Creditors

1,000


Total Liabilities


1,000

Owner's Equity



Paid in Capital

10,000


Total Owner's Equity


10,000

Total Liabilities & Equity


11,000
===== 