2. The accounting equation states that a company's total assets
are equal to the sum of its liabilities and its shareholders'
equity.
This straightforward relationship between assets, liabilities,
and equity is considered to be the foundation of the double-
entry accounting system. The accounting equation ensures
that the balance sheet remains balanced. That is, each entry
made on the debit side has a corresponding entry (or
coverage) on the credit side.
3. ANALYSIS OF TRANSACTION
Assets: the acceptable meaning of assets is the valuable things owned by firm. Expenditure for
acquiring these valuable articles for use in the business is also termed as assets. The assets are
acquired for constant future use. They are not meant of sale. It increase the profit earning capacity
of the business.
Some of the assets are as follow:
(i) Cash in hand
(ii) Cash at Bank
(iii) Sundry Debtor or Book debts
(iv) Bills Receivable
(v) Investment
(vi) Closing stock
(vii) Land Building
(viii) Plant and Machinery
(ix) Equipment and Tools
(x) Furniture fittings
(xi) Patent, Trademark etc.
(xii) Goodwill
(xiii) Prepaid Expense
(xiv) Accrued income
4. LIABILITIES
A liability is something a person or company owes, usually a sum
of money. Liabilities are settled over time through the transfer of
economic benefits including money, goods, or services. Certain
external liabilities are as under:
(i) Creditors of goods- sundry creditors and bills payable
(ii) Creditors for expenses:-
(a) Outstanding salary
(b) Unpaid wages
(c) Rent due but not paid
(iii) Other Liabilities:
(a) Bank overdraft (b) Bank Loan (c) Partner`s loan (d) Loan from
Financial institution i.e IFCI, IDBI etc (e) Employees providend
fund (f) workmen`s compensation fund
5. SHAREHOLDERS' EQUITY
The shareholders' equity number is a company's total assets
minus its total liabilities.
It can be defined as the total number of dollars that a
company would have left if it liquidated all of its assets and
paid off all of its liabilities. This would then be distributed to the
shareholders.
6. ACCOUNTING EQUATION
Capital + Liabilities= Assets
Liabilities = Assets – Capital
Capital = Assets – Liabilities
Assets – Liabilities - capital= Zero