ACCOUNTING EQUATION

-

The accounting equation also called the balance sheet equation is the most basic principle of financial accounting. It represents the relationship between the assets, liabilities, and shareholders' equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. It states that at a point in time, the value of the assets of a business is equal to the sum of the value of its liabilities and its shareholders' equity.

Thus, the accounting equation is, Asset Liabilities + Shareholders' Equity

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations.

A liability is a company's financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, and accrued expenses.

Shareholder equity is the difference between total assets and total liabilities. It is also the share capital retained in the company in addition to the retained earnings minus the treasury shares. Shareholder equity is also called share capital, stockholder's equity, or net worth.

Comments

Post a Comment

Popular posts from this blog

Advantages of motivation in management

-
Definition of motivation Motivation is the inner state that causes an individual to behave in a way that ensures the accomplishment of some goal. In other words, motivation explains why people act as they do. Motivation may be defined as the process at stimulating some to adopt a desired course of action. In brief sense motivation is the drive to achieve a goal. In details sense to attain organizational goal, motivation is a process of making best use of the organization's employees and it is a system to encourage, inspire and to motive the organizational activities. Borolson and Steiner described that, "motivation is an inner state that energizes. activates, or moves and directs or channels behavior toward goals". M.J. Gannon described that "Motivation basically means an individual needs desires and concepts that cause him or her to act in a particular manned'. Heinz Weihrich and Harrold Koontz describe that "Motivation is a general term applying t...
Read more

BENEFITS OF BANK RECONCILIATION

-
Bank reconciliations are an important accounting procedure, performed by companies of all sizes, to match the cash balance of the bank with the balance found on the company's financial records. Reconciliations can detect and prevent intentional fraud, along with errors by bank tellers, accountants, employees, and management. Although bank reconciliation is typically a month-end procedure, companies with smaller cash resources might perform it daily. Detects fraud Because bank reconciliations match a company's disbursed checks with the cleared checks on the company's bank statement, a careful review based on appropriate controls and procedures helps to reveal fraudulent activities. These could include payments for illegitimate business purposes, payments to unauthorized employees or unauthorized vendors, and amended check amounts and details. Prevents overdraft The lag time between cash outflows to vendors and employees - and payments coming in from clients and customers - c...
Read more

The Importance of Impact Shorts in Snowboarding

-
  The Importance of Impact Shorts in Snowboarding Impact shorts, also known as padded shorts or crash pants, are specifically designed to absorb shocks and reduce the severity of injuries during falls. They are typically worn under snowboarding pants and feature padding in key areas prone to impact. Benefits of Wearing Impact Shorts Protection Against Injuries : They provide cushioning to vulnerable areas, minimizing the risk of bruises, fractures, and other injuries. Facebook +9 snowboardingdays.com +9 snowboardingforum.com +9 Enhanced Confidence : Knowing you're protected allows you to push your limits and try new techniques without excessive fear of injury. Comfort : Modern impact shorts are designed to be lightweight and breathable, ensuring comfort during long sessions on the slopes. Versatility : Suitable for various snowboarding styles, from freestyle to alpine, making them a valuable addition to any snowboarder's gear. Key Features to Consider When Cho...
Read more