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About this document
- Pages
- 2 pages
- Price
- $2 one-time, yours to keep
- Membership
- Included in every plan
- Format
- Subject
- Accounting
- Module
- Acc 300
This document explains the accounting equation, its components, and how it is used in a balance sheet. It also provides examples of how transactions affect the accounting equation. It covers the ACC 300 module.
What's inside
- The accounting equation and its importance
- Components of the accounting equation
- The balance sheet and the accounting equation
- Examples of accounting transactions
- References
Who it is for: Students of the ACC 300 module. (Undergraduate)
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Summary
The accounting equation is a basic principle in financial accounting. Students learn how it shows the relationship between a company's assets, liabilities and owner's equity.
The Accounting Equation
The accounting equation is Assets equals Liabilities plus Owner’s Equity. It shows how a company's assets are financed. It is the basis for the balance sheet.
Assets, liabilities and equity
Assets are what the business owns. Liabilities are what the business owes. Owner's equity is what is left after subtracting liabilities from assets.
The balance sheet
The balance sheet shows a company's financial position at a point in time. It lists assets on the left side and liabilities and equity on the right side. The accounting equation shows that total debits should balance with total credits.
Example transactions
A simple example shows how transactions affect the accounting equation. It shows how the double entry accounting system works.
Key terms
- Assets
- What a business owns, such as cash, inventory and equipment.
- Liabilities
- What a business owes, such as loans and accounts payable.
- Owner's equity
- What is left after subtracting liabilities from assets.
- Balance sheet
- A financial statement showing a company's assets, liabilities and equity at a point in time.
- Double entry accounting system
- A method of accounting where each transaction affects at least two accounts.
- Accounting equation
- The equation Assets equals Liabilities plus Owner’s Equity.
Questions this document helps with
- What is the accounting equation?
- Where do assets, liabilities and equity appear on a balance sheet?
- How do transactions affect the accounting equation?
Summary written with AI from the document's text.
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