The document discusses the accounting equation and accounting cycle. [1] The accounting equation states that a company's assets must equal its liabilities plus owner's equity. Assets are economic resources owned by a business, liabilities are debts owed, and owner's equity is the capital invested. [2] The accounting equation can be expressed as Assets = Liabilities + Owner's Equity or alternatively as Owner's Equity = Assets - Liabilities. [3] Understanding the accounting equation is important for analyzing the effects of business transactions.
The document discusses the accounting equation and accounting cycle. [1] The accounting equation states that a company's assets must equal its liabilities plus owner's equity. Assets are economic resources owned by a business, liabilities are debts owed, and owner's equity is the capital invested. [2] The accounting equation can be expressed as Assets = Liabilities + Owner's Equity or alternatively as Owner's Equity = Assets - Liabilities. [3] Understanding the accounting equation is important for analyzing the effects of business transactions.
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The document discusses the accounting equation and accounting cycle. [1] The accounting equation states that a company's assets must equal its liabilities plus owner's equity. Assets are economic resources owned by a business, liabilities are debts owed, and owner's equity is the capital invested. [2] The accounting equation can be expressed as Assets = Liabilities + Owner's Equity or alternatively as Owner's Equity = Assets - Liabilities. [3] Understanding the accounting equation is important for analyzing the effects of business transactions.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOC, PDF, TXT or read online from Scribd
1.Accounting Equation: We have studied about the dual aspect concept of accounting which states that: All the assets of an entity must equate its equities. Assets = Equities Assets: Assets may be defined as Economic resources having some money value owned by a business and are expected to benefit the future operations are called assets. Equities include owners equity (Capital) and liabilities. Liabilities: Liabilities may be defined as: Liabilities are the obligations/debts of a business payable to outsiders. Capital: Capital may be defined as: Amount with which a person starts his business is called capital. From this concept it is evident that there are basically three essential elements in accounting i.e; assets, liabilities and owners equity (capital). Dual aspect concept may be expressed as: Assets = Liabilities + Owners Equity This expression is known as accounting equation. So, accounting equation may be defined as: Expression of assets, liabilities and owners equity, in such a manner that assets equate the sum total of liabilities and owners equity, is known as accounting equation. The accounting equation given above is the usual form of accounting equation. Its original form is given below: Owners Equity = Assets - Liabilities Understanding of accounting equation is very important because it will help in understanding the substance of transactions and their effects. Let us consider the following illustration:
By: Abdul Shakoor & Mirza Ammaz Tariq | Financial Accounting B.Com I