Role Of Accounting Equation In Analysis Of Business Transactions

What is the role of the accounting equation in the analysis of business transactions?

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Nov 03, 2009 Role Of Accounting Equation In Transaction Analysis by: Ana Orwel Coming back to what is the accounting equation, it is an equation where total sum of assets equals to total sum of liabilities and equity. Assets=Liabilities+Equity Accounting covers analysis of business transactions and accounting for those which had an impact on the financial position of the business. So first of all while analysing particular business transaction, we need to consider whether it at all had an impact on the accounting equation. This is one of the roles of accounting equation in the analysis of business transactions. Next step, if we have decided that particular business transaction had an impact on the accounting equation, to account properly for this transaction we need to determine exact impact of this transaction on the equation. Here we need to know whether the transaction causes increase/decrease in asset, liability or equity and how exactly we have to record this impact in the accounting equation. So this is the most important role of accounting equation in the analysis of business transactions. Understanding the essence of the equation and how the transactions impact it allows us to record the events properly. X Close Editor Nov 03, 2009 Rating Submitted by: Ana Orwel Title Comment Coming back to what is the accounting equation, it is an equation where total sum of assets equals to total sum of liabilities and equity. Assets=Liabilities+Equity Accounting covers analysis of business transactions and accounting for those which had an impact on the financial position of the business. So first of all while analysing particular business transaction, we need to consider whether it at all had an impact on the accounting equation. This is one of the roles of accounting equation in the analysis of business transactions. Next step, if we have decided that particular business transaction had an impact on the accounting equation, to account properly for this transaction we need to determine exact impact of this transaction on the equation. Here we need to know whether the transaction causes increase/decrease in asset, liability or equity and how exactly we have to record this impact in the accounting equation. So this is the most important role of accounting equation in the analysis of business transactions. Understanding the essence of the equation and how the transactions impact it allows us to record the events properly. Cancel Delete Delete & Ban Updating Comments page...

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