Accounting
Equation
, What is Accounting Equation
An Accounting Equation is a mathematical expression which shows that the assets and liabilities
of a firm are equal.
•An Accounting Equation is based on the dual aspect concept of accounting meaning, every
transaction has two aspects-debit and credit.
•That further means in every business transaction for every debit there is a credit of equal
•amount and Vice Versa.
•It means total claims (those of outsiders and of the proprietors) will always equal the total
assets of the firm.
•The claims, also known as equities, are of two types:
1.Owner's equity or capital and
2.Liabilities or amounts due to outsiders (i.e., Outsiders Equity).
, Nature of Accounting Equation
•An Accounting Equation always holds true with every change that occurs due to
transaction entered into. It is because of this reason that it is based on the dual
aspect concept of accounting.
•A transaction may affect either both sides of the equation by the same amount or
one side of the equation only, by both increasing or decreasing it by equal amounts.
•Transactions from the Accounting Equation viewpoint, can be divided into two, i.e.,
1.Transactions Affecting Two Items and
2.Transactions Affecting More Than Two Items.
Equation
, What is Accounting Equation
An Accounting Equation is a mathematical expression which shows that the assets and liabilities
of a firm are equal.
•An Accounting Equation is based on the dual aspect concept of accounting meaning, every
transaction has two aspects-debit and credit.
•That further means in every business transaction for every debit there is a credit of equal
•amount and Vice Versa.
•It means total claims (those of outsiders and of the proprietors) will always equal the total
assets of the firm.
•The claims, also known as equities, are of two types:
1.Owner's equity or capital and
2.Liabilities or amounts due to outsiders (i.e., Outsiders Equity).
, Nature of Accounting Equation
•An Accounting Equation always holds true with every change that occurs due to
transaction entered into. It is because of this reason that it is based on the dual
aspect concept of accounting.
•A transaction may affect either both sides of the equation by the same amount or
one side of the equation only, by both increasing or decreasing it by equal amounts.
•Transactions from the Accounting Equation viewpoint, can be divided into two, i.e.,
1.Transactions Affecting Two Items and
2.Transactions Affecting More Than Two Items.
