Accounting equation with examples, presented by shir shah fahim, abdul nasir soroush
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Accounting equation with examples, presented by Shir shah Fahim, Abdul Nasir Soroush
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Accounting equation with examples, presented by shir shah fahim, abdul nasir soroush
- 2. www.company.com Accounting Equation By Shir Shah Fahim, Abdul Nasir Soroush 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
- 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 •
- 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
- 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