Accounting equation (A = L + C) always holds good under all circumstances. Explain.
OR
Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.
Accounting equation (A = L + C) always holds good under all circumstances. Explain.
OR
Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.
An accounting equation always remains intact with every change that occurs due to a transaction i.e., under all the circumstances. It is because dual aspect concept of accounting says that, every transaction simultaneously, has two effects of equal amount. A transaction may affect either both sides of the equation by the same amount or one side of the equation only, by both increasing or decreasing it by equal amounts.
However, in any case, the equality of total assets with the total claims of the business (sum of capital and liabilities) is not disturbed. This equality is algebraically represented as
Assets = Liabilities + Capital
An accounting equation always remains intact with every change that occurs due to a transaction i.e., under all the circumstances. It is because dual aspect concept of accounting says that, every transaction simultaneously, has two effects of equal amount. A transaction may affect either both sides of the equation by the same amount or one side of the equation only, by both increasing or decreasing it by equal amounts.
However, in any case, the equality of total assets with the total claims of the business (sum of capital and liabilities) is not disturbed. This equality is algebraically represented as
Assets = Liabilities + Capital
