Accounting Equation
Contents
Accounting Equation is also called Balance Sheet Equation. It is a basic concept of agreement between left-hand and right-hand site and starting pint of double entry. Double Entry Accounting states that for every debit entry there should be pass a credit entry. Every transaction has twofold effect; this concept has a result of accounting equation or fundamental equation. At any point of time total Assets must be equal to equities. In other words we can say that left hand side which is resource side must be equal to right hand side which is of course source side.
Asset = Liabilities + Owner Equity
Or
Assets = Equities / Claims
Or
Resources = Sources
Or
Left hand side = Right hand side
Different Presentation of Accounting Equation
There are different style of presentation mention below for balance sheet equation:
>> Practice Questions with the help of Accounting Equation Format.
Four Effects of Transactions
Accounting Transaction is broadly classified into four categories:
Expanded Accounting Equation
The Expanded Accounting Equation of sole proprietorship and partnership is Accounting Equation (Assets = Liabilities + Owner’s Equity) – Expenses + Revenue – Drawings Account.
In case of company business the expanded accounting equation in the balance sheet equation (Assets = Liabilities + Stockholders’ Equity) with replacement of Stockholders’ Equity with Paid-in Capital – Expenses + Revenues – Treasury Stock – Dividends.
> > Practice Accounting Equation Problems and Solutions.
Example # 1:
For each of the following transactions indicate the effects i.e. (Increase, Decrease, Conversion or No Effect)?
Example # 2:
From the list of accounts below, determine which assets are and which equities are. List the assets under the Asset Column and the equities under the equities Column. Then add each column and complete the Fundamental Accounting Equation?
Accounts | Asset | Equities | |
Cash | Rs. 5,000 | Rs. 5,000 | |
Accounts Receivable | 10, 600 | 10,600 | |
Building | 35,000 | 35,000 | |
Accounts Payable | 5,000 | 5,000 | |
Inventory | 200 | 200 | |
Computer Equipment | 18,000 | 18,000 | |
Bank Loan | 6,000 | 6,000 | |
Mortgage Payable | 10,000 | 10,000 | |
Owner Equity | 47,800 | 47,800 | |
TOTAL | Rs. 137,600 | Rs. 68,800 | Rs. 68,800 |
Example # 3:
For each of the following equations, a figure is missing. In the space provided, please supply the missing figure that will balance the equation.
Assets | Liabilities | Owner’s Equity |
100 | 20.00 | 80 |
790 | 720 | 70 |
2,000 | 400 | 1,600 |
11,218 | 10,000 | 1,218 |
1,010 | 25 | 985 |
340 | 12 | 328 |
8793 | 0 | 8793 |
2,000 | 1,501 | 499 |
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