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What is Accounting Equation? Video Lecture | Accountancy Class 11 - Commerce

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FAQs on What is Accounting Equation? Video Lecture - Accountancy Class 11 - Commerce

1. What is the accounting equation?
Ans. The accounting equation is a fundamental concept in accounting that represents the relationship between a company's assets, liabilities, and owner's equity. It is expressed as: Assets = Liabilities + Owner's Equity.
2. How is the accounting equation used in financial statements?
Ans. The accounting equation is used as the foundation for preparing financial statements. It helps in ensuring that the balance sheet, income statement, and statement of cash flows are accurately presented. By maintaining the balance between assets, liabilities, and owner's equity, the accounting equation ensures the accuracy of financial information.
3. What happens if the accounting equation does not balance?
Ans. If the accounting equation does not balance, it indicates an error in the financial records. It may occur due to mistakes in recording transactions, incorrect calculations, or omissions. When the accounting equation does not balance, accountants must identify and correct the error to ensure accurate financial reporting.
4. How does a transaction affect the accounting equation?
Ans. Every transaction in accounting affects the accounting equation. When a transaction occurs, it impacts at least two accounts, resulting in changes to assets, liabilities, or owner's equity. For example, if a company purchases inventory on credit, it increases the assets (inventory) and liabilities (accounts payable) in the accounting equation.
5. Can the accounting equation change over time?
Ans. Yes, the accounting equation can change over time as a result of various transactions and events. For example, if a company takes out a loan, it increases both assets (cash) and liabilities (loan payable). Additionally, profitability, investment activities, and owner's contributions or withdrawals can also impact the accounting equation. It is essential to update the equation regularly to reflect these changes accurately.
82 videos|105 docs|42 tests

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