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The Accounting Equation

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[B]The Accounting Equation[/B]

The account equation simply put

Assets = what the business owns
Liabilities=What the business owes
Equity= The owners investment in the business.

This lesson follows on from the double entry you learnt in lesson one, for every debit there must be a corresponding credit entry in your books of account.

The accounting equation must always be in balance if it is not in balance you have entered something wrong in your books.

Let look at a simple transaction
In accounts we have what are called transactions. These are the activities that take place in a company and are recorded in the books of accounts. You will see these throughout your accounting course.

So lets look at our first transaction.

Mr A starts a company by depositing R100.00 into the business bank account.

So first we ask ourselves we account to debit and which account to credit our information tells us the following.

[B]Debit the receiver
Credit the Giver[/B]

We see that the two accounts involved are the bank account and the owners account.

The bank receives the benefit, so we need to debit the bank account in our books, and the Owner gives the benefit so we need to credit his account in our books. Please dont get the bank account in the companies books confused with the account the company holds at the bank.

Debit Bank Account R100
Credit Owner Account R100

Now lets check our accounting e


Bank Account R100= Liabilities + Owners Account R100

Our Equation is in Balance.

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