CBSE Class 11-commerce Answered
Accounting Equation is a mathematical expression based on the dual aspect concept which shows that the assets and liabilities of a firm are equal i.e., Assets = Liabilities + Capital. It is also known as Balance Sheet Equation. It is based on the accounting concept of Dual Aspect, according to which every transaction has two aspects namely, debit and credit.
The process of preparing the Accounting Equations is as follows:
Step 1: Transactions are to be analysed to identify the variables involved and affected i.e., revenues, expenses, assets, liabilities and capital.
Step 2: Determine the effect of the transactions i.e., identify whether it increases or decreases the variables identified in step 1.
Step 3: Once the effect is identified, it is to be recorded on the relevant side of the equation. Once all the effects are recorded, the net increase and decrease in the affected variables will satisfy the accounting equation i.e., Assets = Liabilities + Capital.