Akuntansi dan Pajak Perusahaan MYOB

Accounting Equation

INTRODUCTION TO TRANSACTION ANALYSIS, THE BASIC ACCOUNTING EQUATION

Accounting is built upon the fundamental accounting equation:

Assets = Liabilities + Owner’s Equity

This equation must remain in balance and for that reason our modern accounting system is called a dual-entry system. This means that every transaction that is recorded in accounting records must have at least two entries, if it only has one entry the equation would necessarily be unbalanced.
The equation’s three parts are explained as follows:
1. Assets = what the business has or owns (equipment, supplies, cash, accounts receivable)
2. Liabilities = what the business owes outsiders (bank loan, accounts payable)
3. Owner’s Equity = what the owner owns (investment and business profit)

THE ACCOUNTING EQUATION

From the equation we can see that what the business owns (assets) equals what it owes both creditors (liabilities) and the owners (equity).

The business owes creditors for loans made and other obligations to pay for goods or services.
The business owes the owner for any money or other assets that the owner invests in the business
The business also owes the owner the profit that is realized from business operations.

The accounting equation can be expressed in 3 ways:

Assets = Liabilities + Owners’ Equity
Liabilities = Assets – Owners’ Equity
Owners’ Equity = Assets – Liabilities

If you know any two of the amounts you can calculate the third.
Business Transactions occur on a daily basis as a result of doing business. Items are purchased or sold, credit is extended or borrowed, income is made or expenses are assumed. These business transactions result in changes to the three elements of the basic accounting equation.

1. A transaction that increases total assets must also increase total liabilities or owner’s equity.
2. A transaction that decreases total assets must also decrease total liabilities or owner’s equity.
3. Some transactions may increase one account and decrease another on the same side of the equation i.e. one asset increases and another decreases.

Regardless of the nature of the specific transaction, the accounting equation must stay in balance at all times.
Transaction Analysis is the process of reconciling the differences made to each side of the equation with each financial transaction occurs. Let’s look at some sample transactions to get a better understanding of how the analysis and equation work.
The accounting equation for a brand new company will look like this:

Assets = Liabilities + Owner’s Equity
$0 $0 $0

EXAMPLE

Transaction 1:
The owner deposits $5000 in the checking account to begin operations
Journal :
Cash $ 5000 ( Debit )
Owner’s Equity $ 5000 ( Credit )

Assets = Liabilities + Owner’s Equity
+$5000 $0 +$5000

The asset “Cash” is increased by $5000 and the Owner’s Equity is increased $5000. The business owes the owner $5000.

Transaction 2:
The business purchases a computer, on credit, for $2500.
Journal :
Office Equipment/Computer $2500 ( Debit )
Liabilities $2500 ( Credit )

Assets = Liabilities + Owner’s Equity
+$2500 +$2500 $

The asset “Computers” is increased by $2500 and the liability is also increased $2500 because the business now owns the store $2500.

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