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What is accounting equation?
Accounting equation is also known as the balance sheet equation and emphasizes on the relation between assets, accountability and owner’s valuation. It is the starting point of double entry book keeping system. According to this equation, for every proceeding, the debits and credits are equal to each other. Accounting equations hold a very significant position in the Account Book keeping. The equations used are as follows:
- Assets= Capital + Liabilities.
- Capital= Assets-Liabilities.
- Liabilities=Assets-capital.
- Owner’s equity= Contributed Capital + Retained earnings.
- Retained earnings= Net Income-Dividend.
- Net income= Income- Expenses.
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