The final effect of every business transaction goes to the two components - (1) Capital and Liability, (2) Asset.
There are two important components of Balance Sheet: (1) Capital and Liability, and (2) Asset
As per the norms of the double entry system, the total of the above mentioned components remains identical. According the the terminology of accounting, these two components are known as Capital and Liability side and Assets side. This can be represented in equation form as:
Assets = Capital + Liabilities
(A = C + L)
In equation approach, the effect of transaction is directly given to the assets and capital liability side. In our previous courses we have studied types of accounts and their rules. We have also acquired knowledge about how to write journal entries. Keeping these rules in mind, in this course we understand the equation method.
In this course:
+ Accounting equation and transactions