Accounting

We answer your accounting questions.

Over 500 questions have been answered on our accounting blog. Click here to suggest a question.



August 3, 2009

Will every transaction affect an income statement account and a balance sheet account?

No. Some transactions affect only balance sheet accounts. For example, when a company pays a supplier for goods previously purchased with terms of net 30 days, the payment will be recorded as a debit to the liability account Accounts Payable and as a credit to the asset account Cash. (No revenue account or expense account is involved.)

Another example of a transaction affecting two balance sheet accounts and no income statement account is a deposit for future services. The payer will debit the asset Prepaid Expenses and will credit the asset Cash. The company receiving the payment will debit Cash and will credit a liability account such as Customer Deposits, Unearned Revenues, or Deferred Revenues.

Adjusting entries are a classification of accounting entries that will affect a balance sheet account and an income statement account.

Learn more about the effects of journal entries on our topic Accounting Equation.

Related Questions



Comments

8 Responses to “Will every transaction affect an income statement account and a balance sheet account?”

  1. Hokveng on August 5th, 2009 10:23 pm

    I would like to study Accounting, but I’m not good in it.

  2. sebastian nyam on August 6th, 2009 3:20 pm

    I am really inspired by the great work you guys are doing i am now an expert in Accounting but i am still lacking in some areas thou.

  3. musa on August 8th, 2009 5:20 pm

    i have never done accounting before but i want to start do it know,i really like u to advers me were to start.

  4. ACoach on August 9th, 2009 6:43 am

    Learn accounting by reading our Explanations on AccountingCoach.com. A recommended order for reading the Explanations appears on the free website. There are also Drills to help you learn. We wish you success.

  5. Ken Kaufman on August 12th, 2009 1:00 pm

    Great discussion on how some transactions do not impact the P&L but they do the balance sheet. It would be fair to say that these types of transactions are the ones that impact cash flow and are hard to predict unless you forecast your balance sheet along with your P&L. Obviously with these two in hand you can forecast yoru statement of cash flow with great accuracy (depending on the accuracy of your assumptions on the P&L and balance sheet).

  6. UDDIN on August 15th, 2009 7:30 am

    Only said perioded revenue related transaction effect the income & expenditure account. But beyond the said perioded revenue transaction effect the balance sheet.

  7. Leona on September 8th, 2009 2:37 pm

    What is the difference between transaction statement and t accts. to an income statement. Does income statement only show actual income that was aquired and paid out. NO credit or payments not paid?

  8. ACoach on September 9th, 2009 4:22 am

    Under the accrual method of accounting, the income statement will report
    1. all revenues earned (even if money was not received at the time) and
    2. all expenses occurring during the period shown on the income statement (even if the expenses were not paid during the period).

    Under the cash method of accounting, which is usually not taught in college accounting and which is used by very small companies, the revenues are reported when the money is collected. Expenses are reported when they are paid.

Leave a Reply