ACCOUNTING EQUATION

Accounting Equation signifies that the assets of a business are always equal to the total of capital and liabilities. A business transaction will result in the change in either of the assets, liabilities or capital of the firm and even after the change the assets will be again equal to the total of capital and liabilities. If a business transactions results in the increase of assets, there will also be a corresponding increase in the amount of either capital or liabilities by the same amount.

The ‘Dual Aspect Concept’ is the basis of accounting equation. It can be expressed as:

ASSETS= EQUITIES

An asset is any owned physical object or right, having a money value. These are the economic resources which are owned by a business and from which future economic benefits are expected to flow to the enterprise. The assets may be tangible or intangible like Land and Building, Plant and Machinery, Furniture, Goodwill, Patents, Trademarks and Copyrights etc.

Equities refer to all claims or rights against the assets of an enterprise. These show the sources of the assets. The claims against the assets may be external or internal. External claims are outsiders’ equity and internal claims are owner’s equity. Outsider’s Equity is the liability of the business and owner’s equity is the capital of the business.

The capital is the amount invested by the owner in the business enterprise. It may be invested in cash or kind.

The Liabilities refer to an amount owing by one person to another payable in money, goods or services. The Liabilities may be Long term Liabilities (payable within more than a year) or Short term Liabilities (payable within a year).

The Accounting Equation can be expressed as follows:

ASSETS= LIABILITIES+ CAPITAL

OR

ASSETS= OWNER’S EQUITY+ OUTSIDER’S EQUITY

OR

ASSETS= INTERNAL CLAIMS+ EXTERNAL CLAIMS

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Nature of Accounting	Receipts and Payments Account	Depreciation Accounting	Acid Test Ratio
Benefits of Accounting	Scope of accounting	Hire Purchase Accounting	Cash Ratio
Difference between cost accounting and financial accounting	Financial accounting, cost accounting and management accounting	Difference between hire purchase and instalment system	Financial ratio analysis
Difference between transaction and event	Transactions	Users of Accounting	Ratio analysis
Limitation of Accounting	Capital Expenditure	Instalment System	Difference between consignment and sale
Book Keeping	Revenue Expenditure	Reserves Accounting	Abnormal loss vs normal loss in consignment
Accountancy	Difference between capital and revenue expenditure	Provisions	Treatment of loss on consignment
Accounting as science or an art	Accounting Equation	Single entry system	Accounting treatment of consignment
Book Keeping vs accounting	Deferred Revenue Expenditure	Difference between statement of affairs and balance sheet	Joint venture vs consignment
Book keeping vs accountancy	Capital receipt	IFRS	Departmental Accounting
Accounting vs accountancy	Revenue receipt	Balance Sheet	Methods of departmental accounting
Basis of Accounting	Difference between capital and revenue receipt	Profit and loss Account	Allocation of expenses in departmental accounting
Branches of accounting	Difference between accounting concepts and conventions	Trading Account	Inter-departmental transfers
Cash and mercantile system of accounting	Accounting Standards	Voyage Account	Different types of branches
Accounting Principles	Objectives of Accounting	Accounting for Incomplete Voyage	Departmental vs Branch accounting
Golden ru les of accounting	Process of Accounting	Joint venture	Methods of branch accounting
Double entry system of book keeping	Scope of Accounting	Joint Venture Vs Partnership	Incorporation of branch trial balance
Double entry vs Single entry system	Accounting Concepts vs Accounting conventions	Methods of recording transactions in Joint Venture	Garner VS Murray Rule
History of Accounting	Difference between provisions and reserves	Consignment