1. www.company.com

2. www.company.com
Accounting Equation
By Shir Shah Fahim
DD 29-01-2015
Salam Private
University

3. www.company.com
TheAccounting Equation
in the previouschapterswedisusethebasic terms that used in
accounting balancesheet isthemost important termsin this
chapter, and in thischapter wearegoing to know moreand more
about thisterms
Itsalso called balancesheet equation, represent therelationship
between asset, liability and equity
Assets= Capital + Liabilities
Salam Private
University

4. www.company.com
Salam Private
University

5. www.company.com
Equation
• This word equation comes from the word equal ,
for every equation One side always equal other
side.
Salam Private
University

6. www.company.com
So, what Does the Accounting
Equation means
• Well, in order to know this Answers, we are
going to look the mentioned below terms.
• Assets
• Liabilities
• Owner Equity
•

7. www.company.com
Assets

8. www.company.com
Assets
• Anything which have some future benefits to
the business
• Anything which owned by the business and
have some future benefits.
• That resources which is controlled by an entity.
• There are 2 types of assets
• Current assets and Non-current assets or long
term assets

9. www.company.com
Salam Private
University

10. www.company.com
Liabilities
• Any type of borrowing from persons or banks for
improving a business or personal income that is
payable during short or long time
• Liabilities are the claims of other against assets.
• There are 2 types of liabilities
• Current liabilities and non current assets

11. www.company.com
Owner’s Equity
• The ownership claim on total assets.
• Are the assets which owner invest into business.

12. www.company.com
Basic Accounting Equation
A=L+CASSETS = LIABILITIES + OWNER’S EQUITY

13. www.company.com
Assets and Eguations
Asset any valuable thing belong to the Business
and have some future benefits. And equity means
the claim against these assets.
Equity is divided in capital and liabilities
Capital: refers to the owner equity, which means
the right of the owners in the assets in the firm, and
liabilities refers to the outside equity which means
the right of outsiders on the asset of the firm.
Salam Private
University

14. www.company.com
Balance sheet Equation
• When an asset is purchased, that owner of that
asset have the full authority of that asset, and
that asset become equity of that person.
ASSETS = EQUITIESASSETS = EQUITIES
Salam Private
University

15. www.company.com
Con’t
• As you know that every person which start the
business, all assets are not from its pocket, he
must to increase the fund from credit, or give
lone from bank, and equity divided, 1st
owner
equity and outsiders equity, the outsiders equity
is called Liability and owner equity is called as
capital.
Assets = liability + capital
Assets= Other people claim+ my claim
Assets = liability + capital
Assets= Other people claim+ my claim
Salam Private
University

16. www.company.com
Transaction and accounting equation
• Whenever a transaction taken place, if effect
increasing and decreasing, in the above slides
we define the 3 terms which are assets, liability
and equity, so the look equation below,
Salam Private
University

17. www.company.com
Mr,Irfan start a business of printing for Rs.200,000 by the name of Irfan printing
service
• The effect of this transaction will be like Cash
Increase for 200,000 and Equity is also increase
by 200,000 like,
Assets
Cash
RS 200,000
= Equities
Irfan’s Capital
RS 200,000
Salam Private
University

18. www.company.com
Irfan Purchased Building, for Rs 100,000 and its paid as cash
• This transaction, will change the assets, and
cash will decrease by 100,000 and building will
increase, see the equation
Assets
Cash
Rs. 100,000+
Building
Rs. 100,000
=
Equities
Irfan’s Capital
RS. 200,000
Salam Private
University

19. www.company.com
Irfan purchased machinery wroth Rs. 150,000 from liaqat and 50,000 paid in cash
• In this transactions the machinery will be
increase by 150,000 and 50,000 is the claim of
owner in this asset, and 100,000 is account
payable, and the cash will be decrease by
50,000 look
Assets
Cash
200,000+
Building
100,000 +
Machinery
150,000+ =
Equities
Irfan Capital
200,000 +
A/c payable
100,000
Salam Private
University

20. www.company.com
Irfan Purchased Raw Material for RS 30,000 in cash
• In this transaction the assets increase and cash
decrease by 30,000 look below.
Assets
Cash
20,000
Building
100,000 +
Machinery
150,000 +
Material
30,000
=
Equities
Irfan Capital
200,000 +
A/C Payable
100,000
Salam Private
University

21. www.company.com
Irfan received an order of printing book, shoukat which paid 35,000 in cash and he
will pay 15,000 when the order completed.
• In this the owner equity increase by 50,000 and
cash increase by 35,000 and A/c Receivable will
increase by 15,000 look the mentioned
Assets
Cash
20,000
Building
100,000 +
Machinery
150,000 +
Material
30,000
A/R
15,000
=
Equities
Irfan Capital
200,000 +
A/C Payable
100,000
Salam Private
University