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Accounting Equation Explanation

Impact of all previous transactions on Accounting Equation: Suppose Mr. Gill, a sole trader, has decided to establish a business in leather jackets. He made all of the above transactions. Let’s look the impact of above transactions on accounting equation one by one. Introduction of capital Mr. Gill starts his business by putting Rs. 500,000 as capital into his business and put all the cash into newly opened business bank account. Impact on accounting equation: Asset will be increased by Rs. 500,000 under a new head cash or Bank account. Equity will be increased by Rs. 500,000 under a new head owner’s capital. Assets                                   =    Equity                                    +    Liabilities                  Rs.                                                  Rs.                                                       Rs Cash/Bank      500,000          Capital               500,000                                        ----------
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Accounting Equation

Accounting Equation Definition: If we want to show the Statement of Financial Position (also known as “Balance Sheet”) in its simplest or easy to understandable shape it can only be done by Accounting Equation. So we define accounting equation as “the simplified representation of the statement of financial position.” Accounting Equation: Assets            =          Equity         +        Liabilities So basically accounting equation is the one-liner statement of financial position where assets are equal to the combined total of equity plus liabilities. Every business transaction has its financial impact on the business entity that affects the accounting equation but ultimately accounting equation remains true. And it can only be possible if both aspects of business transaction (according to double-entry Bookkeeping system every transaction has two aspects i.e. debit side and credit side, and should be recorded accordingly.) reach its logical ends. One aspect of the busi
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What is Accounting

What Is Accounting: The very first question that arises in the mind of a person related to accounting field is “What is accounting?” We all know accounting as a field of study as a subject but what it literally means, is hidden in the question and to answer the question let us give you an easy to understand accounting definition and explanation. Accounting Definition: Accounting is a process or a series of particular events in which firstly a bookkeeper or an accountant acquires financial data from a business entity. He or she then secondly maintains the record of the acquired financial data by entering them into the books (it may be an accounting software or a hard copy register) of the business. (The second step is known as bookkeeping). Thirdly the maintained record is then summarized for better view and understanding and last but not the least this summary then follows the rout to the table of the decision makers (Business owners, CPA’s, Auditors etc.) and completes th
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