**Accounting Equation**means that in each case the

__Every transaction changes the assets, liabilities and capital of the business and even after the change the assets of the business remain equal to the business obligations and capital. If a transaction leads to an increase in assets. So by that amount, either the liabilities will increase or the capital will increase.__

**amount of assets is equal to capital and liability.**- The accounting equation is based on the double entry system.
- In the accounting equation, the assets of the company / business are equal to the total liabilities and equity shareholder.
- In the accounting equation, the company's balance sheet remains balanced and every entry made on the debit side is equal to the credit side.

Accounting Equation |

**Balance Sheet**

**Capital & Liabilities**

**Capital = ($60000)**

**Liabilities:-**

**($40000)**

**TOTAL = $1,00,000**

**Assets**

**TOTAL = $1,00,000**

## Accounting Equation Defination

**double entry system**. The double entry system means that every business has 2 transactions which have 2 aspects, one debit second credit, so we can know that the

**accounting equation is the foundation of the double entry system**- which it shows Determines whether the total assets of the company in the balance sheet of the company are equal to the sum of total liabilities and equity of the shareholders.

## Basic Accounting Equation Formula

S. No. | Transaction | Assets | Capital | Liabilities |

Name of Assets | Name of Liabilities | |||

1. | 1st Transaction | Amount | Amount | Amount |

Total Amount | Total | Total | Total | |

2. | 2nd Transaction | Amount | Amount | Amount |

Total Amount | Total | Total | Total |

**This situation can be manifested by the following accounting equations: This Is Based On Balance sheet**

**Assets = Liabilities + Capital ( OWNER EQUITY)**

**$100000 = $40000 + $60000**

**Liabilities = Assets - Capital**

**$40000 = $100000-$60000**

**Capital = Assets - Liabilities**

**$60000 = $100000 - $40000**

## Accounting Equation Example

**Transactions 1.**Gopal started the business with a capital of $75,000. (Gopal started business with 75000 as capital.)

**accounting equation**can be revealed:

**Assets = Liabilities + Capital**

**Cash = Liabilities + Capital**

**75000 = 0 + 75000**

**Transaction 2.**Gopal purchased furniture of cash of $5,000. (Gopal purchased furniture for Cash 5,000)

**Assets = Liabilities + Capital**

**Transaction 3.**Gopal purchased goods worth $20,000. (Gopal purchased goods for Cash (20,000) With this transaction, the business has received the goods in the form of assets and paid the cash, so the accounting equation will be affected by this transaction as follows:-

**Assets = Cash + Furniture + Goods = Liabilities + Capital**

**Transaction 4.**Gopal purchased a loan of $16,000. (Gopal purchased goods on credit for ₹$16,000)

**accounting equation**will be affected by this transaction as follows:

**Assets Equation**

**Liabilities Equation**

**Transaction 5.**Sold goods borrowed for $15,000 costing $12,000. Goods costing $12,000 sold on credit for $15,000)

**Assets Equation**

**Liabilities Equation**

**Transaction 6**. Paid $1,000 for rent

**Assets Equation**

**Liabilities Equation**

**Assets = liability + capital**at each stage. Thus we can say that the accounting equation is true in all cases (Accounting Equation is true in all cases). The final balance of the transactions made in Gopal's books can be shown by making a status statement in this way.