The document discusses the accounting equation, which states that assets must always equal liabilities plus owner's equity. It provides definitions and examples to illustrate the equation. Several business transactions are presented and recorded in a T-account format to demonstrate how the equation remains balanced as assets, liabilities and owner's equity change. The accounting equation forms the foundation of double-entry bookkeeping and is essential for compiling accurate financial statements.

1. ACCOUNTING
EQUATION
SUBMITTED TO :- SIR AMIR HUSSAIN
SUBMITTED BY:- M.Nauman Sher
ROLL NUM:42
BBA (HONS) 2ND SEMESTER

2. CONTENTS
• DEFINITIONS
• IMPORTANCE
• EXAMPLES
• TRANSACTIONS

3. ACCOUNTING EQUATION
• DEFINITION:-
• “For every debit , there is a credit”
• The 'basic accounting equation' is the foundation for the
double-entry bookkeeping system. For each transaction,
the total debits equal the total credits.
ASSETS=LIABILITIES+CAPITAL
A = L +C
• The total assets of the business are equal to the sum of
the assets contributed by investors and the assets
contributed by creditors, the following relationship holds
and is referred to as the accounting equation :

4. IMPORTANCE OF ACCOUNTING
EQUATION
• Financial Statements
• A company’s quarterly and annual reports are, in essence,
derived directly from the accounting equations used in
bookkeeping practices. These equations, entered in a
business’s general ledger, will provide the material that
eventually makes up the foundation of a business’s
financial statements. This includes expense reports, cash
flow, interest and loan payments, salaries, and company
investments.

5. • Double Entry Bookkeeping System
• The importance of the accounting equation also lies in its
status as the foundation of the double entry bookkeeping
system. This accounting system ensures that a
company’s accounts are always balanced and that all
financial transactions are documented in detail

6. • Investment Importance
• Due to its role in determining a firm’s net worth, the
accounting equation is also an incredibly important tool for
investors. The equation can illuminate a company’s
holdings and debts at any particular time, and frequent
calculations can indicate how steady or erratic a
business’s financial dealings might be.
• Double Entry Bookkeeping System
• The importance of the accounting equation also lies in its
status as the foundation of the double entry bookkeeping
system. This accounting system ensures that a
company’s accounts are always balanced and that all
financial transactions are documented in detail

7. • Income and Retained Earnings
• Use of the accounting equation is also an essential
component in computing, understanding, and analyzing a
firm’s income statement. This statement reflects profits
and losses that are themselves determined by the
calculations that make up the basic accounting equation
• Company Worth
• Because the balance sheet is founded on the principles of
the accounting equation (a formula which likewise allows
accountants to compile and analyze the details on this
sheet), this equation can also be said to be responsible
for estimating the net worth of an entire company.

8. Business transactions
• 1st Sep Investment by Owner of Rs.400,000
• 2nd Sep purchased of building of 180,000,paid 120,000 at
the spot and rest were notes payable
• 3rd Sep Purchased furniture of Rs.160,000 out of which
paid 60,000 rest were accounts payable
• 4th Sep purchased stationary for 40,000 paid 30000
while 10000 were to be paid later on.
• 5th Sep Purchased land of Rs.140000 out of which
100000 were paid and 40000 were accounts payable
• 6th Sep Received bank loan of Rs.400,000

9. • 12th Sep Purchased furniture of Rs.150,000, 50,000 were
paid rest were N/P
• 14th Sep Purchased Stationary of Rs.100,000, 70,000 were
paid in advance and 30,000 were to be paid
later on.
• 16th Sep Purchased merchandise of Rs.170,000 , 100,000
were paid in advance
• 21st Sep Purchased furniture of Rs.240,000 out of which
140,000 were paid and rest were notes payable.
• 22nd Sep Sold stationary of Rs.100,000 received 50,000 at
the time of transaction while rest were notes
payable.
• 24th Sep Purchased merchandise for 100,000, 40,000 were
paid in advance.
• 25th Sep Sold merchandise of Rs.60,000 on credit

10. MNSher & CO.
Accounting Equation
1st September,2012
Assets = O.E + Liabilities
Date Cash+ building+furniture+stationary+land+bank Loan+merchandise N/P+ A/P
1st Sep 400,000 400,000
Balance 400,000 = 400,000
2nd Sep (120,000) +180,000 60,000
Balance 280,000+180,000 = 400,000+60,000
3rd Sep (60,000) +160,000 +100,000
Balance 220,000+180,000 +160,000 = 400,000+160,000
4th Sep (30,000) +40,000 +10,000
Balance 190,000+180,000 +160,000+40,000 = 400,000+170,000
5th Sep (100,000) +140,000 +40,000
Balance 90,000+180,000 +160,000+40,000 +140,000 = 400,000+170,000+40,000
6th Sep 400,000 400,000
Balance 490,000+180,000 +160,000+40,000 +140,000 = 400,000+570,000+40,000
12th Sep (50,000) 150,000 100,000

11. Assets O.E +Liabilities
=
Date Cash+building+furniture+stationary+land+bankLoan+A/R+merchandis O.E+ N/P+ A/P
e
Balance 440,000+180,000+310,000+40,000 +140,000 = 400,000+670,000+40,000
14th Sep (70,000) 100,000 30,000
Balance 370,000+180,000+310,000+140,000+140,000 = 400,000+670,000+70,000
16th Sep (100,000) +170,000 70,000
Balance 270,000+180,000+310,000+140,000+140,000 +170,000 = 400,000+740,000+70,000
21st Sep (140,000) 240,000 100,000
Balance 130,000+180,000+550,000+140,000+140,000 +170,000 = 400,000+840,000+70,000
22nd Sep 50,000 (100,000) +50,000
Balance 180,000+180,000+550,000+40,000+140,000+170,000+50,000 = 400,000+840,000+70,000
24th Sep (40,000) +100,000 60,000
Balance 140000+180000+550000+40000+140000+170000+50000+100000 = 400,000+840,000+130,000
25th Sep 60,000+(60,000)
Balance 140,000+180,000+550,000+40,000+140,000+170,000+110,000+40,0 400,000+840,000+130,000
Total 00 =
1370000 = 1370000

12. REFERENCES
• http://www.accounting4management.com/accounting_equ
ation.htm
• http://www.futureaccountant.com/accounting-
process/problems-solutions/fundamental-accounting-
equation.php
• http://www.investopedia.com/terms/a/accounting-
equation.asp#axzz25szQFB5d
• http://www.ventureline.com/accounting-
glossary/A/accounting-equation-definition/
• http://en.wikipedia.org/wiki/Accounting_equation
• http://www.blurtit.com/q9564647.html