Quick questions on The Accounting Equation and Double Entry - TCE Accounting (Tasmania)

For any transaction, work through three questions in order. First, which elements are affected (assets, liabilities, equity, revenue or expenses)? Second, does each one increase or decrease? Third, what debit or credit does that direction require, given the element's normal balance?

Because the equation underpins both reports, reading a transaction's equation effect tells you in advance how the statements will change. A revenue or expense flows through profit into owner's equity on the balance sheet, while an asset or liability change appears directly on the balance sheet. This is why a single recording error here flows straight into the income statement and the balance sheet, and why examiners test the equation effect of transactions so often.