... income statement, and statement of cash flows. We begin by describing why the fundamental accounting equation is the basis for a firm’s balance sheet. the accounting equation The accounting equation is a simple statement that forms the basis for the accounting process. This equation shows the relationship between a firm’s assets, liabilities, and owners’ equity. ● ● ● ● ● ● Assets are the resources a business owns—cash, inventory, equipment, and real estate. Liabilities are the firm’s debts—borrowed money it owes to others that must be repaid. Owners’ equity is the difference between total assets and total liabilities—what would be left for the owners if the firm’s assets were sold and the money used to pay off its liabilities. The relationship between assets, liabilities, and owners’ equity is shown by the following accounting equation: Assets = Liabilities + Owners’ equity The dollar total of all of a firm’s assets cannot equal more than the total funds obtained by borrowing money (liabilities) and the investment of the owner(s). Whether a business is a small corner grocery store or a giant corporation such as General Mills, its assets must equal the sum of its liabilities and owners’ equity. To use this equation, a firm’s accountants must record raw data—that is, the firm’s day-to-day financial transactions—using...
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...Accounting Equation Paper ACC 300 University of Phoenix Accounting Equation Paper No matter how big or small a company is, the business will have some sort of financial transaction coming in or out that will affect the company’s financial standing. In any company, the accountant or accounting department plays a crucial role in ensuring the company succeeds. The main role of accounting is to analyze records and keep track of all financial transactions. The resources that make up a company’s assets, as well as the accounting equation, are liabilities and owner’s equity. At first, owner’s equity is affected by capitals such as issuing stocks. Once the business is up and running, income as well as expenses will be added to the balance sheets. Assets include everything the company owns, from the building to the package of paperclips. Liabilities are debts the company has, to other businesses or individuals. These debtors could include vendors, employees, or financial institutions that loaned money. Equity is also referred to as capital and consists of assets and any debts owed to the business from outside sources. In order to understand the accounting equation, the accounting department as well as leadership must understand how these relate to one another. The accounting equation is as follows: Assets = Liabilities + Owners/Stockholders Equity. Examples of assets include cash, account receivable, and equipment (Kimmel, 2011). The way that this accounting equation...
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...Accounting Equation Paper The accounting equation is quite simply expressed as: Assets = Liabilities + Shareholder Equity or the accounting equation can also appear as the following: Liabilities = Assets – Shareholder Equity and also Shareholder Equity = Assets – Liabilities. The common theme is balance, no matter how the accounting equation is written it must reflect the total number of company assets are equal to the total number of liabilities the company has and those numbers are equal to shareholder equity and balance on the balance sheet. Though simply put, the accounting equation is a complex network of data displayed on the balance sheet and any transaction can offset the equation. On the same token a sale or perhaps a purchase will also be reflected on both sides of the accounting equation. At its conception a company begins at zero, $0 = $0 + $0 (Assets = Liabilities + Shareholder Equity) and any type of transaction should be reflected on both sides of the accounting equation. For example, if the owner of a new company secures a small business loan for $5,000 and decided to deposit the money in to the company account then the accounting equation will reflect: (Assets) $5,000 = $0 (Liabilities) + (Shareholder Equity) $5,000. As the company begins to get off the ground, operating costs begin to accumulate as well as supplies and expenses, those respective amounts would be reflected under Liabilities and would be subtracted from Assets and the Shareholder Equity. Thus...
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...Accounting Equation Franklin Weatherspoon ACC/300 OCTOBER 26, 2013 Dr. M Moczynski, CPA, CGFM Accounting Equation In the business world an individual cannot understand a balance sheet, income statement nor transaction recordings within a general ledger, until he or she understands the basic accounting equation: Assets = Liabilities + Owners Equity (Barclay, 2013). Following is a discussion on the relationship of accounting equation and the components of a balance sheet; along with examples showing the affect of each (University of Phoenix, 2013). Relation in Components The accounting formula is the way double-entry bookkeeping is formulated. The accounting formula, which is known as the balance sheet equation, signifies the connection between the assets, liabilities, and owner's equity of a small company (Peeler, 2013). The accounting formula basically expresses a company’s assets, which is obtained either by liabilities or by the company’s capital. The equation has to balance since the company’s entirety, which is known as assets are brought with something like liability or the company’s capital (Peeler, 2013). The effect of one another The company’s equity is affected by capital, functioning as stock. The company has income, which is revenue minus expenses, and gains minus loses, and sometimes extra capital and withdrawals are known as dividends. When the closing of the month approaches, each item will have an effect...
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...Individual Assignment - Accounting Equation Paper Dennis R Ware ACC/300 October 1, 2012 Kimberly McMillon Individual Assignment - Accounting Equation Paper From the largest corporation all the way down to the mom and pop store, every business transaction will have an effect on a company’s financial position. According to Investopedia.com, the financial position of a company is measured by the following three things: assets, liabilities, and owner’s equity. The assets are what the company owns. The liabilities are what the company owes to others. The owner’ equity is the difference between the assets and liabilities. The accounting equation offers a simple way to understand how the three amounts relate to each other. The accounting equation for a sole proprietorship is as follows: Assets = Liabilities + Equity. The accounting equation for a corporation is as follows: Assets = Liabilities + Stockholders’ Equity. Examples of assets include cash, account receivable, and equipment (Kimmel, 2011). From the accounting equation, you can that the amount of the assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, 2001). Examples of owner’s or stockholders’ equity include common stock and retained earnings. The balance sheet is also known as the statement of financial position. It reflects the accounting equation. The balance sheet reports...
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...The Accounting Equation All aspects of accounting is based off of the fundamental principle of Assets = liabilities + owners’ equity. Each of these elements has their own unique function within the accounting equation. In the accounting equation, each side of the equation balances with the other at all times. This equation is commonly used on the balance sheet. Assets Assets are anything of value that a company owns, which includes cash as well. Several types of assets exist, such assets are as follows: Current, investments, capital, and intangible. These assets are all combined for a company’s total assets. Current assets are assets with dollar amounts that continually change. Such assets may include cash, inventory, raw materials, and raw materials. Investments can be owned by companies which may include securities such as stocks and bonds. Capital assets are permanent things that a company may own. This would include land, buildings, vehicles, and equipment. Other things such as computers, appliances, and furniture can also be considered capital assets as long as they are being used and not being sold. Intangible assets include patents, copyrights and other non-material assets that have value. Liabilities Liabilities are anything a company owes to businesses or other people; there are two types of liabilities. Current liabilities are liabilities that are usually paid within a year. Such liabilities consist of money owed to vendors, suppliers, employees, short-term...
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...Accounting Equation Jarred Evans ACC/300 May 12, 14 Brandy Havens Abstract The purpose of this essay is to give a better understanding of the accounting equation, how the accounting equation relates to the components of the balance sheet, how the components of the accounting equation affect each other and how transactions affect the accounting equation. In business, the accounting equation is used to help us understand how assets, liabilities, and owner’s equity relate to each other along with measures the financial position of a company. The equation is set up as “Assets = Liabilities + Owner’s Equity” for an unincorporated business and “Assets = Liabilities + Stockholder’s Equity” for larger corporations. Assets are the business owned resources, such as money, building, equipment, and inventory. For assets in the equation, it must equal the liabilities plus owner’s equity amount. Liabilities are what companies or small business owe and is considered their duty. “Liabilities can be viewed in two ways, as claims by creditors against the company's assets, and a source—along with owner or stockholder equity—of the company's assets.” Finally, the owner’s equity is what remains after you deduct the liabilities away from the assets. In any transaction, the expressions get altered in order to fit the equation and make the numbers equal properly. “A balance sheet is a financial statement that reports the assets and claims to those assets at a specific point in time” (Kimmel...
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...Accounting Equation Carrie Caruthers ACC300 March 7, 2016 Chastity Gaither Accounting Equation The financial health of a business can be initially measured through the accounting equation. The equation is broken down into three parts; assets, liabilities and owner’s (stockholder’s) equity. Each play an important part in keeping the business financial position in check. Assets = Liability + Owner’s Equity Assets = Liability + Owner’s Equity Assets This is most easily defined as what a business owns, or in some situations, their resources. Some examples of assets are computer equipment, building(s), products, supplies and even profits. (Accounting Coach, n.d.) When looking at the accounting equation, you will notice it sits by itself on the left side of the equation. Liabilities When first thinking about liabilities, I think about monthly bill paying time. Most every person pays bills to various companies/individuals on a regular basis. To define it for the accounting equation, it is just as simple; bills or money that is owed to another. (Kimmel, Waygandt, & Kieso, 2012) Liabilities can be services received immediately or services/products to be received in the future. They can range from internet services, utilities, insurance premiums, salaries & wages, and rent. Liabilities are found on the right side of the accounting equation in the first position. Owner's Equity Probably my most favorite part of this equation is owner’s equity, which is the owner’s claim to...
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...The accounting equation Kenneth Myers Sr. ACC/300 March 19,2014 Harri Elornta The accounting equation The Accounting Equation What is the accounting equation ? The accounting equation is, Assets = liabilities + owners’ equity. Each of these element assets, liabilities, owners equity has their own exclusive purpose within the accounting equation. Each side of the accounting equation should balance at all times. The balance sheet is where this equation is normally used. Assets Anything of value that a company owns including material goods property cash are considered to be an asset. More than a few types of assets exist, such assets are as follows: present, investments, capital, and intangible. The merging of a company's property and their cash will give you a company's total belongings. Current assets are assets with dollar amounts that frequently changing. Such possessions may consist of cash, inventory, raw materials, and raw resources. Investments can be owned by companies which may include securities such as stocks and bonds. Permanent thing are the company's capital assets that they may own. This also includes property, buildings, vehicles, and equipment. Additional Capital assets are items such as personal computers, televisions, appliances, and furnishings as long as they are being used and not being sold. Things that you can't tough are considered to be Intangible assets, and they consist of patents, copyrights, trademarks and other non-material assets...
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...Accounting Equation ACC/300 October 6, 2014 Accounting Equation From the smallest sole proprietorship to the largest corporation, all transactions in a business setting will have an effect on a company’s monetary status. The monetary status of a business is defined by three things: liabilities, assets and owner’s equity. The liabilities are debts or obligations to other people and assets are property or funds owned by the company. The owner’s equity is the total assets of a company minus its total liabilities. The accounting equation: Assets = Liabilities + Owner’s Equity shows the association between the three types of accounts in the accounting world. The accounting equation differs slightly between a corporation and a sole proprietorship. The reason is because a sole proprietorship owns all the equity while a corporation shares the equity with stockholders. Thus, the accounting equation for a one-owner business is: Assets = Liabilities + Equity. The accounting equation for a corporation would be the same except the last part of the equation which would read as stockholder’s equity. Examples of assets include cash, account receivables, and equipment (Kimmel, Weygandt, & Keiso, 2010). From the accounting equation, the amount of assets must equal the combined amount of liabilities plus the equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, Weygandt, & Keiso, 2010). Examples of owner’s or stockholder’s...
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...Accounting Equation Essay ACC/300 Lucinda Degarmo November 30, 2015 Professor Brandy Havens The accounting equation is a simple formula used to measure a company’s financial position. There are three elements that make up an accounting equation; Assets, Liabilities, Equity. There are two types of accounting equations, one for a sole proprietorship and one for a corporation. The accounting equation used for the sole proprietorship is as follows: Assets = Liabilities + Owner’s Equity. The accounting equation used for a corporation is: Assets = Liabilities + Stockholder’s Equity. Assets are considered to be the company’s resources, basically the things a company owns. These are things such as cash, accounts receivable, inventory, prepaid insurance, investments, equipment, land, buildings. The accounting equation tells us that the amount of Assets must be equal to the company’s liabilities plus owner’s or stockholder’s equity. Liabilities are considered to be the obligations that the company owes. Liabilities would be considered things like accounts payable, salaries, loans payable, income taxes payable, interest payable. There are two ways to view liabilities the first view is as a claim by creditors against the company’s assets, or a source along with the equity of the company’s assets. Equity whether it be Owner’s Equity or Stockholder’s Equity is considered the amount left over when the liabilities are deducted from the company’s assets. The...
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...There are numerous aspects to the accounting equation and each has its own set of criteria. In order to maintain proper balance of the account equation, assets equaling liabilities plus shareholder’s equity there are several things to consider which include recordable transactions and financial statements. A transaction is any event that has an impact on the financial statements of the business. In order for a transaction to be recorded it must result in assets equaling liabilities plus shareholder’s equity. Examples of recordable transactions include; the sale of merchandise to a customer, a purchase of supplies or equipment, and borrowing funds from a lender. The aforementioned equation assets = liabilities + shareholder’s equity is the fundamental accounting equation. For an account to have a transaction post to it both sides of the equation must remain equal. You could not for example increase assets without subsequently decreasing liabilities or shareholder’s equity. There are four primary financial statements in accounting; Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows. A Balance Sheet is a statement that shows all of a business’s assets, liabilities, and equity for a point in time. The function of a balance sheet is to show a company’s liquidity and calculate net worth. An Income Statement is a statement that measures a company’s financial performance over a given period, a year for example. The primary function of the...
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...Accounting Equation It is necessary to understand the accounting equation to know and understand the components of a balance sheet. The accounting equation is simply stated assets – liabilities = Shareholder equity and is necessary to balance the books of a company. The accounting equation is best understood in the balance sheet. The balance sheet essentially shows how much money the company has, how much it owes, and what is left for the stockholders. There are many ways that the accounting equation relates to the components of the balance sheet which can be explained more in depth. Examples will also provide more in-depth understand of how the components of the accounting equation affect each other and how transactions affect the accounting equation. Essentially, a balance sheet is created when one subtracts everything that is owed from everything that is owned to come up with a net worth. Just as an individual would put this information together as a balance sheet to evaluate one’s credit worthiness, companies are required to put their balance sheets together several times a year for shareholders. This also allows investors to gauge the company’s finances, and is usually the first report to look at when determining the value of a company. The balance sheet has three main parts which are the assets, liabilities, and shareholder equity. Every balance sheet must balance, and relates to the accounting equation in the sense that the balance sheet shows the...
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...The Accounting Equation Sevara Smith ACC/300 February 11, 2013 Rena Ballot The Accounting Equation The basic accounting equation is, assets are equal to liabilities plus stockholders equity. The assets in the equation are the resources owned by a company such as cash, inventory, fixed assets, and accounts receivable. The liabilities are the debits and obligations of the business, the amounts owed to creditors. The stockholders’ equity is the claim the owners have to assets. The stockholders’ equity is subdivided with two parts, common stock and retained earnings. The common stock is the money paid for shares by the stockholders. The retained earnings are the amount the company retained in net income. With the accounting equation every transaction should have a twofold or dual effect to the extent of the same amount. In other words, assets must balance with the claims to assets. For example, if an asset is increased, a decrease has to occur in another asset or an increase in a liability or stockholders ‘equity. This dual process is revealed on the balance sheet. The balance sheet gives a picture of a company’s finances at a point in time. It gives a summary of the assets, liabilities, and owner’s equity. The balance sheet represents the accounting equation for a company. It displays the assets and claims to assets at a given period of time. The claims of assets are divided into two groups they are claims of creditors (liabilities) and claims of owners...
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...Accounting Equation ACC 300 April 28, 2014 Accounting Equation The accounting equation is an important part of a financial statement. It gives, at all times, proper information because it gathers the appropriate numbers that explain a company’s assets. A balance sheet portrays the financial situation of a company at any given point. The accounting equation is known as: Assets equals Liabilities plus Owner’s Equity. Assets refer to the resources that the business owns, such as accounts receivable, machinery and equipment, land and buildings, inventory, cash at hand and bank and prepaid insurance. It is evident from the accounting equation that the total amount of assets is obtained by summing liabilities and owner’s equity (McLaney & Atrill, 2007). Liabilities refer to the obligations of the business, which are the amounts that the company owes. Liabilities are mostly accounts payable including loans payable, creditors, salaries and wages payable, interests and income taxes payable. Liabilities can be perceived in two dimensions, which include claims by creditors against the assets of the business, and as a source along with the capital (Warren & Reeve, 2011). Owner’s or stockholders equity, sometimes known as capital, refers to amount left after subtracting liabilities from assets. It usually denotes the amount of investment plus the cumulative net profit of the business that has not been withdrawn by the owner or distributed to the stockholders in the case of...
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