Saturday, December 7, 2013

Accounting Equation

Accounting Equation mentioned below:

A=L+E Here, A= Assets L= Liabilities E= Equity, where

Asset: Asset means the economic resources that belong to a business that is invested for making profit. For example, furniture, buildings, machineries of a business.

 Liability: Liability means the financial rigidity that has to be paid up after a certain period of time. That is it is the claim of the third party over the total assets of the business.

Owner’s Equity: If the claim of the third party is deducted from the total assets of the business the rest will be known as owner’s equity. That is the claim of the owner over the entire assets of the business is known as owner’s equity.Four elements affect owner’s equity. These are: ** Investment of owner ** Income ** Drawings ** Expense

we get - Assets = Liabilities + Capital + Revenue -Expenses - Drawings Means, A = L + (C + R – E – D)

Where, A=Assets L=Liabilities C=Capital R=Revenue E=Expenses D=Drawings