Transactions change the balance sheet of an entity and will therefore affect the accounting equation that makes up the balance sheets.
An accounting equation is the idea that there is a debit for all credit. The three aspects that make up the accounting equation and therefore comprise the balance sheet are:
This equation states that Equity and liability make up the assets available to an entity. Liability is the representative of all negative transactions on the assets, eg. Paying the rent. Equity on the other hand can be represented by positive transactions like getting paid. Though these are very simplified examples, they serve to show how these transactions affect the accounting equation.
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