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Accounting Equation/Debits and Credits

1 - What is the accounting equation? What does it tell you? Why does it have to balance? What happens if the equation does not balance?

2 - What are debits and credits? How do debits and credits affect the accounting equation? Are debits always increases? Are credits always decreases? Why or why not?

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1 - What is the accounting equation? What does it tell you? Why does it have to balance? What happens if the equation does not balance?

The accounting equation is
Liabilities + Equity = Assets.

This tells that the sources of funds are equal to the application of the assets. This balance because of dual aspect concept. This means that every business transaction has a dual aspect as every transaction affects at least two accounts.
If the equation is n't balancing, then it indicates the error in recording. There must be some mistake in entering the transaction into ...

Solution Summary

What is the accounting equation? What does it tell you? Why does it have to balance? What happens if the equation does not balance?

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