Accounting Equation Calculation
Transaction 1: Nupur started a business with cash $20,000.
Transaction 2: Purchase of goods worth $50,000 on credit.
|
Tranactions |
Account Affected |
Nature of Account |
Effect |
Amount |
|---|---|---|---|---|
|
Nupur started a business with cash $20,000 |
Cash |
Assets |
Increase |
20,000 |
|
Capital |
Capital |
Increase |
20,000 |
|
|
Purchase of goods worth $50,000 on credit |
Stock |
Assets |
Increase |
50,000 |
|
Creditors |
Liabilities |
Increase |
50,000 |
These will affect the accounting equation as follows:
Accounting Equation: Meaning, Formula, Components & Calculation
The accounting equation is the foundation of double-entry accounting, representing the relationship between a company’s assets, liabilities, and equity. Business is run through transactions. Transactions are financial in nature and they affect the financial position of any business. Every transaction increases or decreases Assets, Liabilities, or Equity. The entire accounting structure is based on these three items. A business receives its fund from proprietors & creditors and invests those funds to acquire assets. This shows that the amount of capital and liabilities will be equal to the total amount of assets.
Table of Content
- Accounting Equation Formula
- Key Components in the Accounting Equation
- Accounting Equation Calculation
- Rule of Debit and Credit ( Under Modern Approach)
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