Learn the basic formula for Accounting ...

The basic accounting formula

The formula that shows what has essentially the company (its assets ) either for what you need (passive) or its owners invest (or equity) bought. This relationship is expressed as an equation:

Capital assets = liabilities + owners

This equation must balance, because each company owns (assets) must be purchased with something, either a liability or equity. Assets refer to as inventory or receivables. Examples of liabilities include bank loans and liabilities . equity or owner's equity investment or equity in the business. Another example is the benefit to society.

The equation of the balance sheet or accounting formula can be expressed in two ways:

Liabilities = assets - equities

Equity = Assets - Liabilities Owner

If you know two of the three components of the balance equation , you can calculate the third component. If you are looking at a balance sheet, you can also see that the record is simply a form of expanded accounting equation.

Balanced to keep accounting formula

If a new company, your accountant the following formula:

Assets = liabilities + equity owners

$ 0 = $ 0 + $ 0

If this device is a very small company, the owner can have $ 1,000 of the company checking account . If the company with the double-entry bookkeeping , the balance equation will now look like this:

Assets = liabilities + equity owners

$ 1000 = $ 0 + $ 1,000

Then this small company is able to buy office supplies with cash in the amount of $ 150 Suddenly, the accounting equation is as follows:

Assets = liabilities + equity owners

$ 1,000 = $ 150 + $ 850

because expenses decrease equity

This means that the active "consumables" has been increased from $ 150 and the cash account fell by $ 150 Regardless of the type of transaction, the accounting equation must remain in balance.

The formula of the extended accounting

The expanded accounting equation shows the relationship between the income statement and balance sheet . Income and expenses - the owner of the equity component of the accounting equation can be divided into two parts. So far, the balance equation has focused on BSI. Now the shareholders of the accounting equation break of revenue and expenditure, the relationship between scale and shows the income statement as revenue and expenses are the key elements of the signature is income statement .

Sales, also called turnover, is what the company is doing to products or services to customers. The costs are what it costs, the company, the product or service to offer. The relationship between income and expenses is easy. If income exceeds expenses, the company generated a profit. If the income is less than expenses, the company suffers a loss.

The owner or owners of the company may also withdraw an income or assets of the company. If the company has its seat, while wages in the form of dividends paid by the Company. If the company is small and a single company, but partnership or limited liability company , the owner or owners have a tie in the company, that their wages.

The expanded accounting equation after taking into account the income and expenses of the sale is:

Assets = liabilities + equity + Employment and Income - Expenditure - Draw

Where: Revenue Growth Equity Owner

Reduce investment

Draw or dividends reduce equity

It is important that the balance of the balance equation, because if not, their financial reports do not make sense and allow you to keep track of your financial transactions.