Education

Accounting Equation Examples

What is Accounting Equation?

Accounting equation is based on dual aspect concept that is Debit and Credit.It emphasizes on the fact that every transaction has a two-sided effect that is the assets and claims on assets. Always the total claims (those of outsiders and of the proprietors) will be equal to the total assets of the business concern. The claims are also known as equities. They are of two types

i. Owner’s equity (Capital);
ii. Outsiders’ equity (Liabilities).

Assets = Equities
Assets = Capital + Liabilities (A = C+L)
Capital = Assets – Liabilities (C = A–L)
Liabilities = Assets – Capital (L = A–C)

Accounting Equation Balancing Examples

Let us understand the effect of a transaction on the Accounting equation with the help of illustrations.

Illustration 1

If the capital of a business is $300000 and other liabilities are $200000. Calculate the total assets of the business.

Solution
Assets = Capital + Liabilities
Capital + Liabilities = Assets
$300000 + $200000 = Rs.500000

Illustration 2

If the total assets of a business are $360000 and capital is $200000
calculate liabilities.

Solution
Assets = Capital + Liabilities
Liabilities = Assets – Capital
Assets – Capital = Liabilities
$360000 – $200000= $160000

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