Accounting Equation is the basis of the double-entry system of accounting. The double-entry system means every business transaction has two aspects one is the Debit and another is the Credit. Example: - If we want to buy something like coke, pizza, or burger we have to pay cash for these items, So in this transaction, we are receiving food and paying cash which means we are doing two jobs, that is why it is called double-entry system.
In the double-entry system, every Debit amount should be equal to the Credit amount Because :
The Business can receive cash or assets from two sources, one from an owner and another is a third party. When it received from an owner this is called Capital and when receiving from third parties then it is called liabilities.
So, in Accounting Equation, Cash or Assets always Equal to the Capital and Liabilities of the business.
"Assets = Liabilities + Capital"
The amount received from the owner is called Capital in the sole proprietorship but it is called shareholder’s funds in the limited company.
"Assets = Liabilities + Shareholder’s funds"
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0:00 Intro
1:48 Meaning of Accounting Equation
3:19 Equation
4:57 Types of transaction
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30 июл 2024
