Assignment 1: The Basic Accounting Equation

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Accounting Equation From beginner to professional company, every inches of business transaction is effecting on a company’s financial position. The financial position of company is measured by: 1. Assets 2. Liabilities 3. Equity The basic accounting equation, also called balanced sheet equation, represents the relationships assets, liabilities and equity of a business. It also offered us 3 amount related to each other which is easy to understand. The accounting equation for a sole proprietorship is: The accounting equation for corporation is: 1. Equity – Resource that provide by the owner of the company to the business. Drawings meaning withdrawals made by the owner for personal use. It will increase if the company make profits but it will also decrease if company making loss. 2. Assets – Things that company owns which…show more content…
Example, bank loan. ii) Current liabilities – amount payable in short term. Example, bank overdraft, payables. The amount left over of owner’s equity or stockholder’s equity after liabilities are deducted from assets: Assets – Liabilities = Owner’s (or Stockholders’) Equity The cumulative net income of the company that has not been withdrawn or distributed to the owners plus owner’s or stockholders’ equity also reports the amounts invested into the company by the owners. The accounting equation will always be “in balance”, meaning the left side should always equal the right side if the company keeps accurate records. At least 2 of a company’s business transaction will be affected if the balanced is not maintain well. Example, If a company borrows money from the bank, after that the company’s assets and liabilities will be increase and one assets will decrease. On every transaction there are two or more accounts will be affected, the accounting system which referred to as double-entry
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