Accounting Equation, the basis topic for students.

1. ACCOUNTING EQUATION
GROUP MEMBERS
AFTAB AHMAD ARSHAD
FIDA HUSSAIN
ADNAN ZAFFAR
JALEEL UR REHMAN
AROOSA ZAHID
SAMAN DAVID
RIDA ALI KHAN
SAQIB HUSSAIN

2. ANY BUSINESS HAVE THREE FINANCIAL MAKEUPS
• ASSETS
• Any economic resource whose benefit would be achieved in future.
• LIABILITIES
• Anything which is the responsibility of business to pay.
• OWNER’S EQUITY
• Right of owner to the assets of business.

3. These three parts always same relationship to each other. This relationship is called
ACCOUNTING EQUATION
ASSETS = LIABILITIES + OWNER’S EQUITY

4. ASSETS ARE THE RESOURCES OF BUSINESS.
• Here are some Assets
• Cash
• Accounts Receivable
• Notes Receivable
• Land and Building
• Equipment
• Supplies
• Machinery

5. LIABILITIES ARE THE CREDITOR’S CLAIM ON
BUSINESS.
• Here are some Liabilities of Business
• Notes Payable
• Accounts Payable

6. EQUITY IS THE OWNER’S CLAIM ON BUSINESS
Effect on Owner’s Equity
• Capital
• What owner put in Business
• Drawings
• What owner take out from Business
• Revenue
• What comes from sales
• Expenses
• What paid for generation Revenue

7. WHEN MORE ITEMS IN ACCOUNTING EQUATION
• EXPANSION
• ASSET
CASH, ACCOUNTS RECEIVABLE, NOTES RECEIVABLE, LAND AND BUILDING ETC…
• LIABILITIES
NOTES PAYABLE, ACCOUNTS PAYABLE, SALARIES PAYABLE ETC…
• OWNERS EQUITY
CAPITAL, DRAWINGS, REVENUE, EXPENSES

8. EXAMPLE
• Accounting Equation can be applied in an individual’s life
When a person purchased a car of Rs. 10,00,000/- and paid Rs. 2,00,000/- from his own pocket and Rs. 8,00,000
take loan from his friend.
Asset = Liability + Owner’s Equity
Car Value = Friend’s Money + Capital
1000000 = 800000 + 200000

9. BALANCE
• Accounting Equations is always balance because all of the assets comes from Owner or Creditors.

10. EFFECT OF TRANSACTIONS
• Owner invested in business Rs. 100000/-
• Cash => Asset => Increase
• Capital => Owner’s Equity => Increase
• Owner withdrew cash from business Rs. 1000/-
• Cash => Asset => Decrease
• Capital => Owner’s Equity => Decrease
• Utility bills paid Rs. 500/-
• Cash => Asset => Decrease
• Bills => Owner’s Equity => Decrease

11. • Goods purchased for Rs. 50000/-
• Stock => Asset => Increase
• Cash => Asset => Decrease
• Goods sold of Rs. 5000/- in Rs. 6000/-.
• Stock => Asset => Decrease
• Cash => Asset => Increase
• Profit => Owner’s Equity => Increase
• Goods sold of Rs. 2000/- in Rs. 1500/-
• Cash => Asset => Increase
• Stock => Asset => Decrease
• Loss => Owner’s Equity => Decrease

12. • Machinery purchased on credit of Rs. 10000/-
• A/C Payable => Liability => Increase
• Machinery => Asset => Increase
• Land purchased for Rs. 20000/-
• Cash => Asset => Decrease
• Land => Asset => Increase
• Sales on credit Rs. 20000/-
• A/C Receivable => Asset => Increase
• Stock => Asset => Decrease

13. • Paid amount of machinery.
• Cash => Asset => Decrease
• A/C Payable => Liability => Decrease
• Received from accounts receivable Rs. 10000/-
• Cash => Asset => Increase
• A/R => Asset => Decrease