Transactions That a Company Engages - Essay Example

There are three main financial statements that are usually affected when a company makes any transaction. Purchase of an asset does not qualify as an expense, since it is a financing activity, which means that the income statement is not affected or changed. The balance sheet is used to record the final balances in the asset, liability, and equity accounts of a firm, which means that this transaction will affect the balance sheet. When the company takes the loan, the cash account (current asset) increases by $150,000, and the loan account (Liability) also increases by $150,000. When the company purchases the asset, the cash account (current asset) reduces by $150,000, and the equipment account (Long-term asset) increases by $150,000. The other financial statement that is affected is the cash flow statement since the transaction of purchasing the asset is a cash flow for an investing activity. In this case, the cash flow for investing activities will be increased by $150,000.