Unit-2 Accounting Equation-Business Accounting| BBA First Year

Unit-2 Accounting Equation-Business Accounting| BBA First Year– Hello student welcome to the pencilchampions.com website. This website provide Unit-2 Accounting Equation Business accounting | BBA first Year 2023. This website helpful all student. Thankyou for visiting pencilchampions.com

Accounting Equation

• The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as follows:

Assets = Liabilities + Shareholders’ Equity

• This equation lays the foundation for double-entry accounting and sheds light on the structure of the balance sheet. Double-entry accounting is a system where each transaction affects both sides of the accounting equation. For every change in the asset account, there must be a corresponding change in the corresponding liability or shareholder’s equity account. It is important to keep the accounting equation in mind when making journal entries.
• The balance sheet is divided into three major sections and its various underlying items: assets, liabilities, and stockholders’ equity.
• Below are some examples of items covered under each section:

1. Assets: cash, accounts receivable, inventory, equipment
2. Liabilities: Accounts Payable, Short-Term Borrowings, Long-Term Debts
3. Shareholders’ equity: share capital, retained earnings

• The accounting equation shows the relationship between these items.

Rearranging the Accounting Equation

• The accounting equation can also be rearranged in the following form:

Shareholders’ Equity = Assets – Liabilities

• In this form, it is easy to highlight the relationship between shareholder’s equity and debt (liabilities). As you can see, shareholder’s equity is what remains after subtracting liabilities from assets. This is because creditors – parties who lend money – have the first claim on the company’s assets.
• For example, if a company goes bankrupt, its assets are sold and these funds are used to repay debts first. Only after the debts have been settled are shareholders entitled to any of the company’s assets to attempt to recover their investment.

Double Sided Accounting

• He concept of double aspect states that every business transaction requires recording in two separate accounts. This concept is the basis of double entry accounting, which is essential for all accounting frameworks to produce reliable financial statements. This concept is derived from the accounting equation, which states that:

Assets Liabilities + Equity

• The accounting equation is made visible in the balance sheet, where the total amount of assets listed must equal the total of all liabilities and equity. A portion of most business transactions will impact the balance sheet in some way, so at least a portion of every transaction will involve assets, liabilities, or equity. Here are several examples:

Issue an invoice to the customer:

• Part of the entry increases sales, which appears in the income statement, while the offset of the entry increases the accounts receivable asset in the balance sheet. Furthermore, changes in income arising from growth in sales are reflected in retained earnings, which is part of the equity section of the balance sheet.

Receive an invoice from a supplier:

• Part of the entry increases an expense or asset account, which can appear in either the income statement (for expenses) or the balance sheet (for assets). The offsetting entry increases the accounts payable liability in the balance sheet. Additionally, changes in income triggered by the recording of an expense are reflected in retained earnings, which is part of the equity section of the balance sheet.
• If an organization does not follow the double-entry concept, it will use single-entry accounting, which is essentially a checkbook. A checkbook cannot be used to obtain a balance sheet, so an entity would be limited to producing a cash-basis income statement.
• If management wants it to happen financial audit, it has to accept dual Aspect concept and maintaining its accounting Records using double-entry accounting. It this is the only format that auditors will accept they have to issue opinion on financial Statement.

Types of Accounting

• There are many types of accounting, ranging from auditing to preparing tax returns. Accountants specialize in one of these areas, which leads to a variety of career tracks as below:

Financial Accounting:

• This area is concerned with the aggregation of financial information into external reports. Detailed knowledge of financial accounting is required. The accounting framework used is the reader’s statement of a company’s financials, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).  There is a feature in the exterior Reporting, which usually involves detailed knowledge of accounting standards. There is also a controller track, which requires combined knowledge of financial and management accounting.

Public accounting:

• This field examines the financial statements and accounting systems supporting client companies to assure that financial statements collected from clients fairly present their financial results and financial position. This area requires excellent knowledge of relevant accounting frameworks as well as an inquisitive personality that can delve deeply into client systems as required. Could. The career track here is for partners to progress through various positions. The audit became a staff audit

Government accounting:

• Government accounting requires such a distinct skill set that accountants specialize in this area throughout their careers.

Forensic accounting:

•  . This career attracts auditors. This is usually a consulting position, since some Businesses require the services of a full-time forensic accountant. Businesses require the services of a full-time forensic accountant.
• This area deals with proper compliance with tax rules, tax filings and tax planning to reduce the tax burden of the company in future. There are many tax specialties that underlie the position of a tax manager.

Internal Audit:

•  This area is concerned with investigating a company’s transaction systems and controlling for weaknesses, fraud, waste and mismanagement and reporting these findings to management. Career track leads to various internal auditor position Internal Audit Manager. Specialties such as information systems auditor and environmental auditor are available.