Accounting Equation

Accounting Equation

❖ Write an explanation of the function of each element in the accounting equation, using 100 to 150 words.

There are many different rules, regulations and requirements in accounting.   However it does not matter how complex an area of accounting may look because accounting is based on one elemental principal which is Assets = Liability + Owners (shareholder) Equity.   The key to remember is in any transaction there is always at least two sides and each side of the equation always stays balanced with each other.
An asset is something in value a company owns. Examples would be Assets make up cash, property, office equipment, inventory and accounts receivable.   Liabilities are existing debts and obligations that are owed by a company. Examples would be salaries, finaning a purchase, notes payable. Owners equity is the owners right to the assets of an entity after all liabilities are paid.   Examples would be retained stock, cash invested in the business and paid in capital.
Even though there are many different rules, regulations and requirements in accounting. These are the fundamental principals of accounting.

    ❖ Complete E1-5 on p. 34 of Financial Accounting

Assets

Cash
Cleaning Equipment
Cleaning Supplies
Accounts Receivable

Liability

Notes Payable
Salaries Payable
Accounts Payable

Owner Equity

Commerce Stock

|CheckPoint 2                                                                                                     |10.0 |10.0 |
|Comment: Thank you for your discussion of the accounting equation.  It is the basis for                         |     |     |
| financial accounting.  Sometimes it's called double entry accounting because                                   |     |     |
| all entries that we make must be equal.     Good job on E1-5.                                                   |     |     |

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