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In an era filled with touchpoints.docx | for 100% scores

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The basic accounting equation is Assets = Equity + Liability. It is also known as the balance sheet equation. The double-entry bookkeeping system is founded on this very equation, as it represents t ... hat the total credit balance equates to a total debit balance. An accounting transaction is a business activity or event that causes a measurable change in the accounting equation. An exchange of cash for merchandise is a transaction. Merely placing an order for goods is not a recordable transaction because no exchange has taken place. In the coming sections, you will learn more about the different kinds of financial statements accountants generate for businesses. In the previous section we described specific types of accounts that business activities fall into, namely: 1. Assets (what it owns) 2. Liabilities (what it owes to others) 3. Equity (the difference between assets and liabilities or what it owes to the owners) These are the building blocks of the basic accounting equation. The accounting equation is: ASSETS = LIABILITIES + EQUITY For Example: A sole proprietorship business owes $12,000 and you, the owner personally invested $100,000 of your own cash into the business. The assets owned by the business will then be calculated as: $12,000 (what it owes) + $100,000 (what you invested) = $112,000 (what the company has in assets) Assets = Liabilities 112,000 = 12,000 In a sole-proprietorship, equity is actually Owner’s Equity. If the business in question is a corporation, equity will be held by stockholders, which uses stockholder’s equity but the basic equation is the same:ASSETS = LIABILITIES + EQUITY For Example: A business owes $35,000 and stockholders (investors) h [Show More]

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