Accounting Equation — Flashcards

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The accounting equation states that Assets = Liabilities + Capital. It shows that the resources of a business are always equal to the claims against those resources. It is the basic relationship used …

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It helps in analysing transactions, checking accuracy, and understanding how assets, liabilities, and capital change together. If two parts of the equation are known, the third can be found easily. It…

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Accounting Equation: A = L + C. Here, A stands for Assets, L stands for Liabilities, and C stands for Capital.

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Liabilities = Assets - Capital, or L = A - C. This form is used when assets and capital are known and liabilities have to be found.

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Capital = Assets - Liabilities, or C = A - L. This form is used when assets and liabilities are known and capital has to be found.

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Assets are the resources owned by a business. Examples include cash, goods, furniture, building, machinery, and debtors. Assets help the business earn income and carry on operations.

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Liabilities are amounts owed by the business to outsiders. Examples include creditors, bank overdraft, and salary outstanding. They are claims against the business by persons other than the owner.

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Capital is the owner’s claim on the business. It increases when the owner brings in more capital or when the business earns profit, and it decreases when the owner withdraws money or goods or when the…