The Basic Accounting Equitation

The Basic Accounting Equitation

Assets = Liabilities + Shareholders’ Equity

 Statement of financial position / balance sheet

o aka balance equation

 Comparative statement

o two or more periods of compared amounts

 the accounting period is also known as the Period of time statement

 the revenues of increased retained earnings results in a decrease of

expenses & dividends retained earnings

 Share capital increases with investment & issued shares

Transaction Analysis: after each transaction, there must be an analyzation of

economic substance to decide what accounts are or could be affected

Principal: a specific amount borrowed

Profit: when :

revenue is greater than expenses

inflow is greater than outflow

Loss: other way around [profit]