Accountancy is one of the most crucial subjects that a student needs to understand in details. It is extremely important that students have a fair idea of its basic facets and then proceed for a wider view. So, what’s next in line?
If you wish to find out more about the accounting equation questions and solutions, then visiting authentic homework help websites is the ideal thing for you. You need to understand that the equation for accounting is literally the foundation for the entire system of accounting. The accounting system which involves double entry is actually based on the most basic accounting equation. The accounting equation, actually tells two things about the company. It speaks of what the company owns and what it owes in the market.
Elements of the equation
It is really important for the students to know about the different components of the equation. The financial position that a company holds is usually measured on the basis of these components. The assets of the company or what it possesses is the first component. These things can include inventories as well as cash. The money present in the insurances as well as investments of the company will also be counted.
The accounting equation questions and solutions will also speak of the things that the company owes to others. These liabilities include the loans to be paid as well as the wages paid by the company to the workers every month. When the difference between the assets and liabilities is done, then the capital remains. The accounting equation used generally, tells of the relationship between these terms.
Maintaining a balance
The accounting equation is always related to the business, which elevates the importance of accounting equation questions and solutions. The balance is always required to be maintained because the valuation of the assets of the company is always equal to what the businessman owes in the market. These people are also known as the funders for the business.
The funders may be people of the bank as well as such other investors. By doing the accounting, the external funders are referred to as liabilities and the internal ones known as equities.
The assets can be referred to as the summation of the liabilities and the equities. Hence the valuation of the things provided to the business house by the funders become equal to what the company owes to the funders.
The fact that a business begins from nothing and grows to become the owner of many different things is defined by accounting. Hence it can be said that everything in the business is provided by others in the beginning, after the creation of the business.
Dealing with situations of shutdown
The bookkeeping system which makes use of double entries has been developed to ensure that the equation remains in a balanced state after the completion of each of the transaction. This kind of scenario is best explained; when you see that a business is closing down.
During the shutting down, the assets of the company are first sold out, and the liabilities will be paid out using the money got from there. In the accounting equation questions and solutions, you will find applications in such scenarios.
After the liabilities are paid off, the remaining money will go back to the owners, and this is known as the equity. Hence, in the end, the business house really owes nothing to anyone else. Hence the equation of accounting still stays balanced. If the situation of close down seems quite reasonable to you, then you will be able to accept the equation of accounting too in a similar fashion.
Factors affecting the equity of the owner
The various operations being done in the business affects the equity of the owner and can even bring about its decrease. If assets from the business, has been taken out for the purpose of personal use, then that can also cause a decrease in the equity. The accounts of the business will get affected when money in cash is received from the owner as an investment and also when cash money is paid to cover an expense for the business.
Way to find net income of the company
According to the equation, if the sum of liabilities and equities equal to that of assets, then the change observed in the assets subtracted from change observed in the liabilities would give you the net income. You have to obviously make the assumption that no transactions in capital were made in the account of equity. This means that no dividends went in to the account of the business owners or some new investment was made by the owner.
Principle of cost
When seen from the viewpoint of an accountant, the use of the term cost would be referring to the amount spent in cash wen an item was purchased. The purchase may have been made one year ago or 30 years back. It is owing to this principle that the amounts concerned with the assets do not get adjusted upward on course of the inflation. Hence if one intends to find out about the assets of a company, you will not get the information from financial statements.
Help at hand
If you are taking the help of the online tutors to get an idea about accounting equation questions and solutions, then you will be getting lots of new opportunities in your hands. The experts of the industry will be there to answer your queries regarding accounting.