Accounting Project

Accounting
Equation
Introduction
In the formation of accounting data, accounting equations are used for
financial statements no matter if you are just a small business or a
multimillion company. What is the accounting equation? The accounting
equation states that a company's total assets are equal to the sum of its
liabilities and its shareholders' equity. They will find out from the balance
sheet what the owner owns, what is the quantity and quality of the
company’s resources that the company can dispose of, and who was
involved in the creation of these resources.
Accounting Equation
The accounting equation or equity equation is an

equality consisting of three variables: assets, liabilities
and equity. The accounting equation tells us that the
sum of liabilities and equity must equal the company's
total assets.
Accounting Equation
The equation has its meaning in the concept of credit
and debit in accounting, which teaches us that what is
owned by the company is equal to what it owes.
For the company to obtain or build the assets, two

things or one of two things had to happen:
❖ Loaned money to a bank, for example (Liability)
❖ The partners put up the money (equity).

Accounting Equation
Companies do not arise from nothing, but are
created, so the resources that the company has
were contributed by the partners and third
parties that financed them, and that is why the
assets are equal to the sum of the liabilities plus
the equity.
The concept of the accounting equation is based

on the fact that the value of the assets must be
100% financed, 100% of which can be financed
partly with debts and partly with equity, being the
debts the liabilities and the equity the equity, or it
can be financed entirely by equity or contribution
of the partners.
Assets
Assets are resources a company owns or controls. These
resources are expected to yield future benefits. Examples are
web servers for an online services company, musical
instruments for a rock band, and land for a vegetable grower.
Assets include cash, supplies, equipment. land, and accounts
receivable.
Assets are what is owned, liabilities are what is owed and equity
are the financial resources that belong to the company. How
do we calculate assets? We can calculate them as liabilities
plus equity:
Assets = Liabilities + Equity

Liabilities
Liabilities are creditors' claims on assets. These claims are
obligations to provide assets, products, or services to
others. A payable is a liability that promises a future
outflow of resources. Examples are wages payable to
workers, accounts payable to suppliers, notes (loans)
payable to banks, and taxes payable. Liabilities can be
calculated as assets minus equity.
Liabilities = Assets - Equity

Equity
Equity is the owner's claim on assets and is equal to assets
minus liabilities. Equity is also called net assets or residual
equity. Equity are capital, additional paid-in capital,
reservations, treasury stock and equity interests, equipment
and interim dividend

Examples
Determine Active
Julia and her Roomate Angela come together to
build a company whose economic activity is Putting
and Retouching nails. Each one contributes to the
company $100.00 dollars. In this case, the accounting
equation reflects the following data.
Assets = liabilities + stockholders' equity.
That is, assets = 0 (liabilities) + $200.00. = $200.00.
As a result of the contributions, the elements of the accounting equation
are affected because said amount becomes part of the business assets,
surely reflected in the bank account, but simultaneously it will be
represented in the item corresponding to capital:
Capital = Assets - Liabilities.
That is, Capital = $100.00- Liabilities = $100.00.
By providing such accurate information, the balance sheet is an essential
guide to making smart financial decisions and informing strategies to
increase assets.
Determine the equity in the Company YMD Company S.A, which
has the following balances in its books:
Box $20,000.00
Banks $14,500.00
Customer debtors $3,000.00
National providers $8,000.00
Merchandise not manufactured by the company $19,000.00
Expenses paid in advance $8,000.00
Office equipment $7,000.00
Financial obligations national banks $20,000.00
Social contributions =?
Equity =Assets - Liabilities
Assets Liabilities

$20,000.00
$20,000.00
$8,000.00
$14,500.00
$20,000.00
$3,000.00
$19,000.00
$8,000.00
$7,000.00
TOTALS
$71,500.00 $28,000.00
Equity = $71,500.00 – $28,000.00
Equity = $43,500.00
The Liability of the following company ends.
Argenis Márquez has $240,000 in cash, $15,600,000 in banks, his
office equipment corresponds to a value of $2,604,000 and he
has merchandise worth $15,230,000. In addition, his assets are
$11,320,000. find the passive
Assets $240,000 + $15,600,000 + $2,604,000 + $15,230,000 =
$33,674,000
Equity $11,320,000
LIABILITIES = $33,674,000 -$11,320,000 = $22,354,000

The accounting
equation in daily life
The accounting
equation in daily life
Accounting also influences our lives on a daily basis,
when we do some business, acquire some kind of
loans, and to obtain material and non-material
goods. In any situation that arises in our daily lives we
need accounting.
The accounting equation in daily life
❖ Acquire a loan, we assume the

commitment to pay the principal plus the
liabilities that are generated according to
the time agreed upon.
❖ When we acquire a loan, we assume the

commitment to pay the principal plus the
liabilities that are generated according to
the time agreed upon.
The accounting equation in daily life
❖ When buying a vehicle we find ourselves

in an accounting equation because we
must keep track of all the expenses of our
vehicle such as, gasoline, washing,
insurance, etc.
❖ When we decide to open a business, we put our

assets to work, in order to generate more assets
Credit and Debits
Credits and Debits
Debits and credits are essential to the
balancing of a company's accounts. A debit
is an accounting entry created to indicate
either an increase in assets or a decrease in
liabilities on a business' balance sheet.
Credits, on the other hand, work in the
opposite way.
Credits and Debits
In the accounting equation, debits and credits are fundamental building
blocks.
When one side increases, the other side decreases. When one account is
debited, the same amount must be credited in another.
Credits and Debits
Debits add to asset or expense accounts while subtracting
from liability, income, or equity accounts. Credit recordings
have the opposite effect. Each debit entry must be matched
by a credit entry for the same amount when a transaction is
recorded, and vice versa. Double entry accounting relies
heavily on debits and credits.
The Debit Side: The debit side is the left side of the equation.
As you can see, the assets are on the left side of the
equation.
Credits and Debits
The Debit Side: The debit side is the left side of the
equation. As you can see, the assets are on the left side of
the equation.
The Credit Side: The credit side is the right side of the
equation. As can be seen, the right side of the equation is
made up of Liabilities and Owner's Equity.
To summarize, debits increase assets while decreasing
liabilities and equity, so even though credits decrease
liabilities and equity while increasing assets, They work
together to keep the accounting equation balanced.
Conclusion
The accounting equation is the procedure in which we can obtain both the
closing data of the accounting cycle, and at the beginning when we want to
start a company.
In the accounting equation we were able to notice and learn that at the end of
the annual cycle of a company we must know what were the total profits, the
total losses and all the assets that the company possesses in that year.
For example, if we want to open a company between partners, but each
partner must make an investment, at the end of that investment we need to
know the total capital invested by the partners, and in that case we use the
accounting equation as follows: asset = liabilities + net worth. By using the
following formula, we will know what is the investment capital that later
becomes company assets, whether a part is deposited in the bank or
company inputs are purchased to start its function.

Accounting Project

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Accounting

The accounting equation or equity equation is an

For the company to obtain or build the assets, two

❖ Loaned money to a bank, for example (Liability)

❖ The partners put up the money (equity).

The concept of the accounting equation is based

Assets = Liabilities + Equity

Liabilities = Assets - Equity

Liabilities = Assets - Equity

LIABILITIES = $33,674,000 -$11,320,000 = $22,354,000

❖ Acquire a loan, we assume the

❖ When we acquire a loan, we assume the

❖ When buying a vehicle we ﬁnd ourselves

❖ When we decide to open a business, we put our

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