Question

Accounting equations is developed with the help of ?

Answer 1

The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a person or business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. It can be expressed as further more.

{\displaystyle {\text{Assets}}={\text{Liabilities}}+{\text{Equity}}} {\displaystyle {\text{Assets}}={\text{Liabilities}}+{\text{Equity}}}

{\displaystyle A=L+E} {\displaystyle A=L+E}

{\displaystyle {\text{Assets}}={\text{Stockholder Equity}}+{\text{Liabilities}}} {\displaystyle {\text{Assets}}={\text{Stockholder Equity}}+{\text{Liabilities}}}

{\displaystyle a=oe+l} {\displaystyle a=oe+l}

In a corporation, capital represents the stockholders' equity. Since every business transaction affects at least two of a company's accounts, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its assets) is purchased by either what it owes (its liabilities) or by what its owners invest (its shareholders equity or capital).

For example: A student buys a computer for $900. To pay for the computer, the student uses $400 in cash and borrows $500 for the remainder. Now his assets are worth $900, liabilities are $500, and equity $400.

The formula can be rewritten:

Assets - Liabilities = (Shareholders' or Owners' Equity)