Definition and Explanation of Accounting Equation

Accounting Equation: Definition and Explanation of Accounting Equation: Dual aspect may be stated as for every debit, there is a credit. Every transaction should have twofold effect to the extent of the same amount. This concept has resulted in accounting equation which states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of equities. In other words, for every business enterprise, the sum of the rights to the properties is equal to the sum of the properties owned. The properties of the business are called assets. The rights to the properties are called equities. Equities may be sub-divided into two principle types: The rights of the creditors and the rights of the owners. The†¦show more content†¦Difference between sales price and cost price is treated as profit and has been added to capital. Transaction 6: Sold merchandise on credit for $4,000 costing $3,000. Assets = Liabilities + Proprietorship Cash Furniture Merchandise Debtors Creditors Riaz, Capital + 32,000 + 10,000 + 13,500 = + 5,000 + 50,500 - 3,000 + 4,000 + 1,000 ________________________________________ 32,000 +10,000 + 10,500 + 4000 = + 5,000 + 51,500 ________________________________________ Note that this transaction has affected assets side and also the proprietorship. Anew element debtors has been introduced. Difference between sales price and cost price is treated as profit and has been added to capital. Transaction 7: Paid $1,000 to creditors for merchandise purchased. Assets = Liabilities + Proprietorship Cash Furniture Merchandise Debtors Creditors Riaz, Capital + 32,000 + 10,000 + 10,500 + 4,000 = + 5,000 + 51,500 - 1,000 - 1,000 ________________________________________ 31,000 +10,000 + 10,500 + 4000 = + 4,000 + 51,500 ________________________________________ Transaction 8:Show MoreRelatedDefinition and Explanation of Accounting Equation1220 Words   |  5 PagesAccounting Equation: Definition and Explanation of Accounting Equation: Dual aspect may be stated as for every debit, there is a credit. Every transaction should have twofold effect to the extent of the same amount. This concept has resulted in accounting equation which states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of equities. 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