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Step 3: Unadjusted Balances - Balance Sheet

Transactions in the Journal are "posted " or transferred simultaneously to financial statements: the Balance Sheet, the Income Statement, the Statement of Cash Flow and the Statement of Changes in Equity. The first transaction in the journal, O1 in M1, has a debit and a credit entry into two Ledgers of the balance Sheet.

Following the double entry principle these entries are represented by the two entries in the Accounting Equation, a debit entry Bank and a credit entry Equity, as shown below as an illustration for O1, so that the accounting equation is always valid, namely, that the sum of all balances on the asset side are equal to the sum of all balances on the claims side.

The Exhibit below shows the two entries for O1, taken from Worksheet for the Balance Sheet in Month One (M1).

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