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    GAAP and the acconting equation

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    A. The framework used to record and summarize the economic activities of a business enterprise is referred to as the accounting equation. State the basic accounting equation and define each of its major components. How are business transactions and financial statements related to the accounting equation?

    B. Explain the meaning of generally accepted accounting principles (GAAP).

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    Solution Preview

    The basic accounting equation is written as -
    Assets=Liabilities+Owners Equity

    Assets are defined as all items which a business. Liabilites define what is owed by the business to outside parties. Owners Equity are the funds provided by the owners for the operations of the business.

    Let us see how the business transactions are related. When the owners provide money for starting the business, the buisness gets cash. This cash is owned by the business and becomes an asset. From the above equation, then one side we have cash and the other side we get owners equity. ...

    Solution Summary

    The solution explains the accounting equation and its relation to financial statements and the meaning of GAAP