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    Basic Accounting Equation

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    Arienaya
    The basic accounting equation represents the relationship between a business's assets, liabilities, and owner's equity. It states that assets must always equal liabilities plus owner's equity. Transactions affect the equation by increasing or decreasing different accounts, maintaining the balance. For example, receiving cash increases assets and owner's equity, while paying liabilities decreases both assets and liabilities. The basic accounting equation is the foundation for double-entry bookkeeping.

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    Basic Accounting Equation

    Uploaded by

    Arienaya
    78 views4 pages
    The basic accounting equation represents the relationship between a business's assets, liabilities, and owner's equity. It states that assets must always equal liabilities plus owner's equity. Transactions affect the equation by increasing or decreasing different accounts, maintaining the balance. For example, receiving cash increases assets and owner's equity, while paying liabilities decreases both assets and liabilities. The basic accounting equation is the foundation for double-entry bookkeeping.

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    Persamaan Dasar Akuntansi

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    The basic accounting equation represents the relationship between a business's assets, liabilities, and owner's equity. It states that assets must always equal liabilities plus owner's equity. Transactions affect the equation by increasing or decreasing different accounts, maintaining the balance. For example, receiving cash increases assets and owner's equity, while paying liabilities decreases both assets and liabilities. The basic accounting equation is the foundation for double-entry bookkeeping.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    78 views4 pages

    Basic Accounting Equation

    Uploaded by

    Arienaya
    The basic accounting equation represents the relationship between a business's assets, liabilities, and owner's equity. It states that assets must always equal liabilities plus owner's equity. Transactions affect the equation by increasing or decreasing different accounts, maintaining the balance. For example, receiving cash increases assets and owner's equity, while paying liabilities decreases both assets and liabilities. The basic accounting equation is the foundation for double-entry bookkeeping.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Basic Accounting Equation

    Definition Of Basic Accounting Equation

    The basic accounting equation, also called the balance sheet equation, represents the
    relationship between the assets, liabilities, and owner's equity of a business. It is the foundation
    for the double-entry bookkeeping system. For each transaction, the total debits equal the total
    credits.

    The Function Of Basic Accounting Equation

    Basic accounting equation is useful to know the change of the Company Intellectual
    property ANY Transaction occurred. And knowing how much has been used and spent in one
    accounting period.

    How Business Activities Change the Accounting Equation

     Assets = Liabilities + Owner’s Equity

     Equation must always remain equal

     When reading transactions, Received Cash always means cash increases; Paid Cash
    always means cash decreases

     Transactions don’t always affect both sides of the equation

     When analyzing transactions, always

     Read the transaction

     Identify the accounts

     Classify the accounts (Asset, Liability or Owner’s Equity


    Assets
    Assets are valuable resources that are owned by a company. They represent probable future
    economic benefits and arise as the result of past transactions or events. Items of value owned by
    the business. Examples of assets :

     Cash

     Account Receivable

     Supplies

     Prepaid

     Building

     Motor vehicle

     Equipment

    Liabilities
    Liabilities are present obligations of the company. They are probable future sacrifices of
    economic benefits which arise as the result of past transactions or events. Businesses of all sizes
    usually borrow money and purchase merchandise on credit. Thats transaction arise liabilities.
    Examples of liabilities :

     Account Payable

     Salaries Payable

     Bank Loan

     Unearned Revenue

    Owner’s Equity
    Owners' equity represents the owner’s residual equity in the assets of the business. Residual
    equity is another name for owner’s equity. Examples of Owner’s Equity :

     Equity

     Drawing
    Transaction Effect
     Transaction That Affects Both Asset And Liability
     ASSET  LIABILITY 
     ASSET  LIABILITY 
     Transaction That Affects Both Asset And Owner’s Equity
     ASSET  OWNER’S EQUITY 
     ASSET  OWNER’S EQUITY 
     Transaction That Affects Both Assets Only
     ASSET  ASSET 
     Transaction That Affects Both Liabilities Only
     LIABILITY  LIABILITY 

    Example :
    a) John began business with cash in hand $5,000.
    b) The firm took a bank loan of $8,000.
    c) Being purchase of motor vehicle from ABC Trading for $2,000.
    d) Being payment of $500 to Creditor, Peter.
    e) Being receipt of $3,500 in from a debtor.
    f) Being repayment of bank loan for $1,500.
    g) Being purchase of office equipment from Trading on credit for $780.
    h) Paid employees’ salaries $2,200
    i) Recieved a cash payment of $1,250 for service provided
    Account Office Account Bank Owner’s
    Cash Vehicle
    Receivable Equipment Payable Loan Equity

    5,000 5,000

    8,000 8,000

    13,000 8,000 5,000

    (2,000) 2,000

    11,000 2,000 8,000 5,000

    (500) (500)

    10,500 2,000 (500) 8,000 5,000

    3,500 (3,500)

    14,000 (3,500) 2,000 (500) 8,000 5,000

    (1,500) (1,500)

    12,500 (3,500) 2,000 (500) 6,500 5,000

    780 780

    12,500 (3,500) 2,000 780 280 6,500 5,000

    (2,200) (2,200)

    10,300 (3,500) 2,000 780 280 6,500 2,800

    1,250 1,250

    11,550 (3,500) 2,000 780 280 6,500 4,050

    10,830 10,830

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