Accounting Equation

Meaning of accounting Equation:-

Accounting equation means the total assets of the business are always equal to the total capital & liabilities.

Formula:-                         Assets  =          Liabilities        +          Capital                         A         =          L                     +          C

Accounting Equation is based on the Dual Aspect of Accounting which holds that for every debit or credit, there is equal credit or debit.

Clarification of Accounting Equation with Examples:-

Transaction- I

            Mr. Kaushal started a business with ₹ 10,000/-

Soln:-

            Accounting equation are following:-

Assets Cash	Capital +Liabilities
10,000	10,000  +   0
Total  10,000	Total 10,000

Transaction- II

            He Purchases goods ₹ 4,000/- and furniture ₹ 1,000/- for cash.

Soln:-

            Accounting equation are following:-

Assets                  Cash   +  Stock + Furniture	Capital +Liabilities
Old Eqn.10,000   +      0     +       0	10,000  + 0
Tran.  (-) 5,000    + 4,000   + 1,000	0         + 0
New Eqn. 5,000 + 4,000    + 1,000	10,000   +0
Total   10,000	Total     10,000

Transaction- III

            Mr. Kaushal Purchases goods ₹ 3,000/- on credit.

Soln:-

            Accounting equation are following:-

Assets                  Cash   +  Stock + Furniture	Capital +Liabilities Capital + Creditor
Old Eqn.  5,000    + 4,000   + 1,000	10,000  +  0
Tran.            0       + 3,000   + 0	0         + 3,000
New Eqn. 5,000 + 7,000    + 1,000	10,000    + 3,000
Total   13,000	Total     13,000