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# Accounting process

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Need help in preparing a 850 word document stating the accounting equation. Explain and define all components of the equation and provide examples of each.

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Need help in preparing a 850 word document stating the accounting equation. Explain and define all components of the equation and provide examples of each.

The accounting equation is Assets = Liabilities + Owner's Equity. This is an arithmetical statement given in numerical terms that shows that the assets owned by an entity are financed by a combination of capital given by the owners of equity and by borrowings obtained from different sources. The accounting equation is essentially an accounting rule that Assets = Capital - Liabilities at any point in time. The rationale is that if a person increases or reduces a liability or Capital then that person is increasing / reducing assets also at the same time.

The accounting equation reflects the essentials of double entry accounting system. It delineates the relationship between assets, liabilities and net worth. Essentially the accounting equation helps one understand the balance sheet and make proper use of the balance sheet. If we define the components of the accounting equation we get the following. Assets show the worth of goods, products or property in the possession of the entity. Liability, represent the borrowings that were incurred to acquire the assets. Owner's equity refers to financial worth of the entity, less any outstanding debts.

From a different perspective the accounting equation shows that net worth is calculated by taking the ...

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• BSc , University of Calcutta
• MBA, Eastern Institute for Integrated Learning in Management
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