How to Balance the Accounting Equation

Accounting rule "what is the accounting rule for "" bought refrigerator for personal use $ 400?

I know refrigerator comes and cash goes out, but what is the effect of this transaction on the Asset=liability+capital side? thank you for your time?
and if you can please give me some more examples with other kind of transactions on the equation. please not that i'm not confused with what to debit or what to credit, rather i get confused when i try to balance a transaction on accounting equation.. thank you for all"

Mohamed sadik from UAE

Mohamed Sadik! there is big relationship between accounting rule and accounting  equation.  There are 6 accounting rules which apply on three accounts. Personal accounts rules apply on the real and artificial persons. Real accounts' accounting rules apply on tangible and intangible assets. Nominal accounts' accounting rules apply expenses and incomes. For learning accounting rules, it is good, you should learn accounting equation. In accounting equation, you will see one of basic formula which you have mentioned Total assets = External liabilities + capital. If you want to balance the accounting equation, you should keep following things in your mind.

a) If any asset will buy, total asset side will increase with that asset and cash will decrease or creditor of that asset will increase in liability side. But it should be for office use. If it will be for personal use as you mentioned in your example. This will decrease the capital and this will decrease cash. There will not any effect on the quantity or price of office  refrigerator. So, our accounting equation will easily be balanced by doing this.

b) All the expenses will decrease the value of our capital. It will decrease our cash or bank balance if we have paid expenses with our cash or bank money. If we did not pay the expenses, it will increase our current liability.

c) All the incomes will increase the value of our capital. It will also increase our cash or bank balance if we have received incomes in cash or through cheque. If we have to receive our income, it will increase the debtor amount. Debtors are also our assets.

d) All personal account may be asset account or liability account. Suppose, when you will buy  office refrigerator of $ 400 on credit from Rahim, Rahim account will open. By balancing accounting equation. We will increase the asset with the value of refrigerator of $ 400. We will also increase our liability of $ 400 which is payable to Rahim.

Vinod Kumar

Educator

Prof. Vinod Kumar is an Indian Educator, Motivational Speaker, Naturopathic Practitioner and Entrepreneur . He is the founder of Svtuition... read more »

0 comments:

Post a Comment