The accounting equation aids the professionals greatly in making sure that the whole process is being done in an effective and efficient manner. Lets discuss in detail some other benefits of accounting equation.
The accounting equation is of a great value and relevance in the process of accounting as a whole. As such, it is necessary to make analysis accordingly on the basis of accounting equation.
The accounting equation aids the professionals greatly in making sure that the whole process is being done in an effective and efficient manner.
The accounting equation encompasses these components, Assets, liabilities and owner’s equity, while it represents the relationship between them.
The basic accounting equation, which is also known as balance sheet equation is formed in this way: Assets = Liabilities + owner’s equity.
In order to make interpretation and analysis of financial information, basic understanding of the accounting equation and the conceptual knowledge is important. Also, it's appropriate to mention that the financial reports are prepared on the basis of the accounting equation, which shows the importance of debits and the corresponding credits being associated with the innumerable business transactions, while representing the relevance of the components.
It is worth mentioning that the double entry book keeping system on which the accounting system is based, is clearly understood through this equation. It is thus set up in such a way that if two components are known, the third one can be easily determined.
As regards the relation between balance sheet and the income statement, it is through the expanded equation – that includes the components of the income statement, the link between these two financial statements can be asertained. So, the expanded accounting equation goes this way:
Assets = Liabilities + Owner's Equity + Revenue - Expenses – Drawings – Dividends
It is helpful to make use of the accounting equation at the time of preparing financial statements, as it would not only help you to maintain the accuracy, but also enable you to track the debits and credits, so that you can balance the equation accordingly.
The importance of accounting equation should not be underestimated, as it's very much helpful to serve as a basis for all the accounting transactions.
Representing the relationship with the components of the balance sheet, it reveals the financial standing of a business entity.
The statement, the boss is always right, is very common. People working in any organization under a manager or a superior hear this mantra very often.
The accounting equation is of great help and assistance to accounting professionals. There are several benefits of basic accounting equation.
This is replete with fact that studying a major is one thing and applying that knowledge to real world situations is entirely another. Before you face the problem with experience paradox, that is, you need to show your experience to get a job and experience is not attained without a job or without performing those activities that are counted in the range of experience, you should consider to go for accounting internship..