What is the first step in analyzing the effect of a business transaction?

• A. Identify the accounts affected by the transaction
• B. Post the transaction to the ledger accounts
• C. Record the transaction in the journal
• D. Determine the amount to be debited and credited

Answer: (A)

Verified step by step guidance

1. Understand the purpose of analyzing a business transaction, which is to determine its impact on the financial position of the business.
2. Identify the accounts affected by the transaction. This involves determining which specific accounts (e.g., Cash, Accounts Receivable, Revenue, Expenses) are influenced by the transaction.
3. Classify the accounts affected as either asset, liability, equity, revenue, or expense accounts. This helps in understanding the nature of the transaction.
4. Determine whether each account is increasing or decreasing as a result of the transaction. This step is crucial for deciding whether to debit or credit the accounts.
5. Verify the accounting equation (Assets = Liabilities + Equity) to ensure that the transaction maintains the balance of the equation after recording.