what is accounting equation and give some example by understanding way
Answers
Answer:
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From the large, multi-national corporation down to the corner beauty salon, every business transaction will have an effect on a company's financial position. The financial position of a company is measured by the following items:
Assets (what it owns)
Liabilities (what it owes to others)
Owner's Equity (the difference between assets and liabilities)
The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. The accounting equation for a sole proprietorship is:
Answer:
Accounting equation is the foundation of the accounting system and of the double entry system.
Explanation:
Accounting equation is shown in the balance sheet of the company stating aggregate of all companies assets equals to the sum of all liabilities and the owner's equity or capital of the business.
It is depicted as:
Assets = Liabilities + Owner's Equity or Capital
For example,
A business commences its business with cash of Rs 40,000, Stock of Rs 20,000 and the furniture of Rs 30,000.
So, the following transaction will have the impact on the equation as:
Assets = Liabilities + Capital
Cash + Furniture + Stock (Inventory) = Liabilities + Capital (Cash + Furniture + Stock)
From this assets and capital will be affected and liabilities will have no impact.
Rs 40,000 + Rs30,000 + Rs 20,000 = Liabilities + Rs 40,000 + Rs30,000 + Rs 20,000
Rs 90,000 = 0 + Rs 90,000
This must be equal to each other.