The accounting equation states that assets are equal to capital plus liabilities, or that capital is equal to assets minus liabilities. Assets are resources owned by the business, liabilities are resources borrowed from others, and capital represents the total resources invested in the business by its owners. The accounting equation and double-entry system ensure the two sides of every transaction are always balanced.
The accounting equation states that assets are equal to capital plus liabilities, or that capital is equal to assets minus liabilities. Assets are resources owned by the business, liabilities are resources borrowed from others, and capital represents the total resources invested in the business by its owners. The accounting equation and double-entry system ensure the two sides of every transaction are always balanced.
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The accounting equation states that assets are equal to capital plus liabilities, or that capital is equal to assets minus liabilities. Assets are resources owned by the business, liabilities are resources borrowed from others, and capital represents the total resources invested in the business by its owners. The accounting equation and double-entry system ensure the two sides of every transaction are always balanced.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online from Scribd
Business Liabilities – are resources borrowed from others Capital – Total resources invested in Business by Owner . Capital is often called Owner’s Equity or Shareholder ‘s Equity. Capital = [Funds invested by owner + any Profits retained by owner (Retained Earnings)- Dividends paid out ]
Prepared by : DASRAT THARANI
Further Explanation of Terms 3 ASSETS – are of two types LIABILITIES: like assets liabilities are also of two types ; Fixed Assets (Non current Assets ): These assets have longer Fixed Liabilities (Non current life (Usually above one year ) Liabilities ): The liabilities which For Example: Assets of Land , have longer life (Usually above Buildings, Machinery , Furniture one year ) & Fixtures and Vehicles etc. e.g Long Term Loans Current Assets : assets which have short life ( up to one accounting Current Liabilities: liabilities which Period i.e one year usually ) have short life ( up to one For Example: Inventory (Stock ), accounting Period i.e. one year Receivables (Debtors) , Bank or usually ) Cash & Pre- paid Expenses e.g Short term Loans , Payables (Creditors) & Accrued Expenses
Prepared by : DASRAT THARANI
4 The whole double Entry System of Importance of Accounting is based on Accounting System . Accounting The Accounting equation is based on dual Equation concept of Accounting ; it means that every Always remember following Rule for Journal Entries : Accounting Entry has two affects . For example : when we purchase Motor Vehicle Always Dr. on Credit for 1000$ then two things happen: Increase in : Motor Vehicle(Asset)Increases & Accounts Assets Payable (Liability) also increases & following Expenses & Journal Entry is made Decrease in Liabilities, Motor Vehicle Dr. $1000 Capital & Revenue
Always Cr. Accounts Payable $1000 Cr.
Decrease in Assets , So there is always a Balance going on Between Expenses & two sides of Accounting Equation due to Dr. Increase in Liabilities , (Debit) and Credit (Cr.) entries. Capital & Revenue