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Tuesday, 20 January 2015

The Accounting Equation

accounting equation example

Accounting equations’ discretion starts from the assets and liabilities. Mathematically speaking, the equity is the difference between the value of its assets and that of its liabilities:

Assets - Liabilities = Capital

In addition, you can increase the share by revenue and decrease with the outputs. This make sense that when you get a check you become "rich" and when you pay for heaving lunch you become "poor". Mathematically this concept is expressed the Accounting Equation:

Assets - Liabilities = Capital + (Revenu - Expenses)

The equation always be respected; This is true whether the movements of money are always made from one account to another.

 For example, if you receive the money as revenue, there is a corresponding increase in capital. Another example, you may have an raise in assets if it corresponds to an increase in liabilities.