As an entrepreneur, who are thinking of going into business, or who is already conducting business, you have to start learning about the basic concepts of Accounting because they are the concepts that are used in reporting your business activities to the government come tax time. It is time you must know about one of the most fundamental concepts in accounting.
Accountants process data into documents called financial statements. It is the accounting equation that is the basis for the entire accounting system.
So what is this magical equation?
The Accounting Equation is:
ASSETS = LIABILITIES + OWNERS’ EQUITY.
In crude definition,
ASSETS are economic resources of the business that are expected to bring benefits for the business in the future.
LIABILITIES are economic resources borrowed by the business from another person or an organization.
OWNERS’ EQUITY is the economic resources that was contributed by the owners of the business to the business.
One way of thinking of this equation is that the left side is what the business has including its money, equipment, building, land, furniture,...
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