BASIC ACCOUNTING : EQUATION / BASIC FORMULA'S

Accounting equation is very important to understand accounting. it is simple formula which tell us that total asset of the company always equal to total capabilities and capital of the company

TOTAL ASSET = TOTAL CAPITAL + TOTAL O/S LIABILITIES

TWO BASIC ACCOUNTING FORMULAS/EQUATION

All General Ledger accounting is governed by these two basic accounting formulae:

Formula 1:

  Assets (what you own on a specific date)
- Liabilities (what you owe on a specific date)

= Equity (the value of your business on a specific date)

Formula 2:

  Income (money you bring in over a specified period)
  - Expenses (money you pay out over the specified period)
  = Profit (changes to the value of your business over the specified period)