Commerce Exam > Commerce Videos > Accountancy Class 11 > What is Accounting Equation?
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.
Text Transcript from Video
counting equation in this module you
will learn about the accounting equation
the business various transactions take
place daily a record of all such
transactions is made on the basis of the
double-entry system in the books of
accounts the fundamental accounting
equation is the basis for any accounting
system including the double-entry system
the accounting equation explains that
the assets of a business are financed by
borrowed money or owner's equity the
accounting equation is written as assets
is equal to liabilities plus owner's
equity capital or liabilities is equal
to assets minus owner's equity or
owner's equity is equal to assets minus
liabilities the accounting equation
helps in the preparation of a balance
sheet it shows that all assets of a
business are always equal to the sum of
all liabilities and owner's equity or
capital usually a business transaction
affects both the sides of the accounting
equation however at times it may bring
changes either on the asset side or in
the liabilities and owner's equity only
but the sum total of both the sides
remains equal now let us consider an
example for chased furniture for rupees
25 thousand in cash purchasing furniture
for cash will reduce the amount of cash
by rupees 25000 and increase the balance
of furniture by rupees 25 thousand which
ultimately leads to no change in the
amount of assets and there will be no
change in the
census of liabilities and almost equity
as well at the end the total or summary
of all transactions indicates that every
transaction has a double effect and in
each case the sum total of assets is
equal to the total of liabilities and
owner's equity
the total after the last transaction in
the accounting equation can be shown in
the form of a balance sheet in this
module you have learned the following
the accounting equation is the basis for
any accounting system including the
double entry accounting system the
accounting equation shows that all
assets of a business are always equal to
the sum of all liabilities and owner's
equity the accounting equation is
written as assets is equal to
liabilities plus owner's equity capital
the total of assets and liabilities or
owner's equity is always equal the total
after the last transaction in the
accounting equation is shown in the form
of a balance sheet
will learn about the accounting equation
the business various transactions take
place daily a record of all such
transactions is made on the basis of the
double-entry system in the books of
accounts the fundamental accounting
equation is the basis for any accounting
system including the double-entry system
the accounting equation explains that
the assets of a business are financed by
borrowed money or owner's equity the
accounting equation is written as assets
is equal to liabilities plus owner's
equity capital or liabilities is equal
to assets minus owner's equity or
owner's equity is equal to assets minus
liabilities the accounting equation
helps in the preparation of a balance
sheet it shows that all assets of a
business are always equal to the sum of
all liabilities and owner's equity or
capital usually a business transaction
affects both the sides of the accounting
equation however at times it may bring
changes either on the asset side or in
the liabilities and owner's equity only
but the sum total of both the sides
remains equal now let us consider an
example for chased furniture for rupees
25 thousand in cash purchasing furniture
for cash will reduce the amount of cash
by rupees 25000 and increase the balance
of furniture by rupees 25 thousand which
ultimately leads to no change in the
amount of assets and there will be no
change in the
census of liabilities and almost equity
as well at the end the total or summary
of all transactions indicates that every
transaction has a double effect and in
each case the sum total of assets is
equal to the total of liabilities and
owner's equity
the total after the last transaction in
the accounting equation can be shown in
the form of a balance sheet in this
module you have learned the following
the accounting equation is the basis for
any accounting system including the
double entry accounting system the
accounting equation shows that all
assets of a business are always equal to
the sum of all liabilities and owner's
equity the accounting equation is
written as assets is equal to
liabilities plus owner's equity capital
the total of assets and liabilities or
owner's equity is always equal the total
after the last transaction in the
accounting equation is shown in the form
of a balance sheet
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Jan 07, 2025
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