Accounting Equation Paper

Accounting Equation Paper

Accounting Equation Paper

From the large corporations, like Walmart and Costco, to the small Mom and Pops corner store, every transaction made will affect the accounting equation, a.k.a their financial position. “The financial position of a company is measured by the following items:

1. Assets (what it owns like cash and equipment)

2. Liabilities (what it owes to others like salaries and taxes)

3. Owner's Equity (the amount left over from assets and liabilities)” (Averkamp, n.d.).

Team C will first discuss the components of the balance sheet. Next we will discuss how the components of the accounting equation affect each other. Last, we will discuss how the transaction affects the accounting equation.

Components of the Balance Sheets

Balance Sheets represent an up to date view of a business at any given point. Balance sheets are also referred to statement of financial position which reflects assets, liabilities and owner’s equity of a business at a specific period. Balance sheets primarily accounts for the assets, liabilities and the proprietor’s equity of any business which indicates the financial standing. The primary components of balance sheets are: Assets, Liabilities, and Accounting Equations. Accounting equation provide a business the awareness that in the balance sheet, the total asset must be equivalent to the summary of liabilities and proprietor’s equity (Accounting Tutorial 2011).

Accounting Equation and how they affect Each Other

To answer this question, we first have to look at the accounting equation, Assets (A) = Liabilities (L) + Owners Equity (OE) or A = L + OE. All accounts in any business will fall under one of the three accounting variables. The way that they affect each other is simple, in most cases; any one transaction will affect the other two categories of the equation. If you spend money on paying your bills, your assets and liability will decrease. If you are paying for asset on credit, then...