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The accounting equation is the mainstay of accounting, and this is based on a double-entry registration system, which is the same as any charge corresponding to credit, and we can define it as the equality that exists between the elements that make it up, which are:
Assets = Liabilities + Capital
Therefore, the accounting equation is applied at all times from the beginning of the companys operations, in the same way when it carries out different types of commercial transactions, understanding by transaction the fact or condition that requires a book-entry or accounting record. The equation is called the relation of equality that exists between two members, and only verifiable for certain values of letters that are included in it.
Example: 8x + 15 = 31
This equation only checks for the value of x = 2
At the same time, we will indicate that every equation is made up of two parts, the first on the left known as the first member, and the other on the right known as the second member.
According to our experts of assignment writing service in Australia, the fundamental principles on which the Double-entry is based are the following:
To have a clearer concept and to demonstrate numerically the relationship of financial equality in the balanced equation, we must know the components of this equation.
As mentioned above, the elements that make up this fundamental equation are Assets, Liabilities, and Capital.
We know by asset: the set of goods, rights, or values that an entity owns, said goods have an economic value expressed in monetary terms and is classified as:
Movable and immovable property, machinery and equipment, all of these used for the normal development of its activities, we also know it as:
We also have immaterial or intangible assets such as patents, inventions, etc. That contributes to the development of company activities.
A Liability is a present obligation of the company that comes from past events, the settlement of which is expected to produce an economic benefit. We also know it as the set of debts and obligations to third parties pending payment on a certain date.
Capital represents the investment made by the owner or partners that make up the company, it is reflected through the net result obtained from operations that increase or decrease the initial capital and represents at all times the difference between assets and liabilities.
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