Loans and accounting equation

Why is accounting so strong? This is because all of them derive from a simple accounting equation:

Assets – liabilities – shareholders' equity = 0

Assets = liabilities + share capital

shareholder assets = assets – liabilities

liabilities =

Yes, all of them are a simple equation. Just a bunch of different versions, the same thing to say. He is always in balance, he can always provide information. The accounting equation can provide tons of information. By eliminating this equation with other accountants, financial analysts and banks get more complex way to evaluate the company. For example, assets may be broken down into current assets and long-term assets. Hence, the greater the ability to evaluate key financial measures than liquidity. Liquidity rates respond to a simple question: "Do you have X Company enough money to pay your bills?" Simple and vital question to answer

Now that you understand the power of the equation, talk about the burdens and the credits. Understanding loads and credits focuses on the equation when claiming:

Assets – liabilities – equity capital = 0

Debt and loans ensure that the equation is always in balance. Most people think of load and lending positive or negative from the left or right. Before you know your left and your legs are confused and you find yourself in a messy mess. This is just two contradictions that are opposite to each other on the same side of the equation. Load and lending are always always the same. This equation creates a balance. Allow parts of the equation to change, but the result should be the same, zero.

Zero serves as a control number function. Credit will always offset the burden, which does not have a net effect. This is it. The numbers change, but the balance remains. This way we monitor the changes in the financial position of our business. This whole process is called double-entry accounting.

People are usually confused by a trick of some accounting. Basically, this is how to draw up a profit statement. All accounting information is used to make the balance. The income statement is created by dividing part of the income into income and expense accounts. Because the billing side of these accounts usually affects a device or obligation.

The culmination of these revenue and expenditure expense is recognized in retained earnings at the end of the accounting period. The assets and liabilities are wholly counterbalanced. The net effect of all entries in the cost and income accounts is related to the amount of retained earnings that is in balance with the assets and liabilities

This allows the balance and the difference to coexist. Obviously, you want to know what you are looking for to earn revenue from your income and that the positive figure (hopefully) is the remainder of your profits. The difference. At the end of the day, the income credit ultimately becomes the lending of the remaining income, which increases the owner's share of the balance sheet.

Keep your accounting up to the level of simple concepts. Billing is a documentation of a transaction, so it's not too complicated.

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