DQ. 1: Accounting Equation
As you have learned in this week’s readings, the Accounting Equation is Assets = Liabilities + Owners’ Equity. Is the accounting equation true in all instances? Provide sample transactions from your own experiences to demonstrate the validity of the Accounting Equation.
Review several of your peers’ posts and identify some core components that you feel should be included in every transaction. Respond to at least two of your peers and provide recommendations to extend their thinking. Challenge your peers by asking a question that may cause them to reevaluate or add components to their transactions.
The basis of double entry system is the accounting equation. We believe that both sides of the accounting equation will be affected by each transaction in the double entry system. This means that there will be an equal amount of credit for every debt so that there is a balance in the accounting equation. Since an increase in one side increases the other side as well, therefore, in all instances this accounting equation is true (Walther, 2010). This means that there must be at least two entries for every transaction which is being recorded in the accounting records.
The equation will be necessarily unbalanced if it there is only one entry. The accounting equation has three main factors, i.e. owner’s equity, liabilities and assets. The resources owned by the business, such as, accounts receivable, cash, supplies and accounts are known as assets. The things business owes to the outsiders, like, accounts payable and bank loan is known as the liabilities. The resources owned by the owner, i.e. business profit and investment are known as the owner’s equity. In accordance to the accounting equation, the equity of the owner and the things business owes to its creditors are equal to the resources owned by the business, i.e. the assets.
The sample transactions are mentioned below:
I invested 20,000 dollars capital into a business which makes the cash of the business increase and this also increase the equity capital of the owner and the assets of the business in the form of capital investment.
Accounting Equation: Assets = Owner’s Equity + Liabilities 20,000 = 0 + 20,000 = 20,000
Walther, L. (2010). The Accounting Equation. Retrieved from: https://saylor.longsight.com/handle/1/13641
DQ 2: Accounts
What does the term account mean? What are the different classifications of accounts? How do the rules for debits and credits impact accounts? Please provide an example of how debits and credits impact account.
The record of the financial transactions is known as an account. The accounting equation is affected by the transaction which proves the authenticity of the balance of accounts. The accounts are classified as equity of the owner, assets, liabilities, expenses and revenue in modern approach. The inflows generated by the company from rendering services and selling products are known as the revenues. The outflows that occur when services are rendered by the company or products are sold by the company, are known as the expenses. The resources used by the company for generation of cash inflow are known as the assets.
The future obligations, which are required to be paid by the company, are known as the liabilities. The amount invested by the owners of the business to run the operations of the business is known as the owner’s equity. Integral parts of the accounting…