What impact do PP&E transactions have on the balance sheet bearing in mind are basic principle that assets must equal liabilities plus equity so our balance sheet must balance.

Let's look at each of these transactions in turn.

When you buy an asset your cash balance will go down.

And your PP&E balance will go up.

So we have both a decrease production in cash and an increase adding PP&E to our balance sheet in our assets.

effectively a movement from cash to PP&E next when depreciating that asset.

the asset balance will decrease but what will also happen is that equity will decrease, Now why is this? This is because depreciation is an expense in the income statement.

And the income statement flows through to retained earnings which sits under equity in the balance sheet.

So we have a reduction in assets a drop in the value of PP&E and a corresponding reduction in equity.

What about when we sell an asset? For simplicity let's assume that we make zero profit or loss on the sale. What will happen is cash will increase with the proceeds we receive.

And our asset balance will decrease because that PP&E will be removed from our balance sheet. So we have a simultaneous increase and decrease in assets.

So with all of these transactions like all others that go through the balance sheet our balance sheet remains in balance.

Assets equal liabilities plus equity.