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

Relation of accounting system with society and environment:

Accounting is not merely used for obtaining profit. Apart from making profit, it also contributes towards society and environment so that it is not affected by that. From the following illustrations, some contribution of accounting towards society and environment can be determined:

1. Organizations will contribute towards the resistant of environment pollution and accountant will keep its records. This record will tell us about the consciousness and contribution of that owner towards the society and environment. Especially the oil refinery companies contribute generously towards environment from being polluted.

2. Smoke emitted from industry and factories are injurious towards human and environment. The owner and the accountant spent a lot of money for protecting the environment issues. For this, governments’ rules and regulations must be followed.

3. While producing a product hygiene raw materials are used, less electricity is consumed, the sound of electricity must be at a tolerable limit, and garbage should be dumped in proper places. To ensure these some expenses are to be made. Besides allocating this fund, an accountant must also make proper records of those expenses.

4. Every Business organizations have to spend for society as a part social commitment, such as providing scholarship among poor and meritorious students. For this, accounts are to be kept for proper fund allocation.