Introduction to the Accounting Equation
Nowadays ,it is mandatory that every business has a bookkeeper or accountant to keep track of their accounts and ledgers but who was the one that developed bookkeeping? Fra Luca Pacioli is an Italian man who was the first person to develop an actual bookkeeping system. He is often called the "father of accounting" because he was the first to publish a detailed description of the double-entry system thus enabling others to study and use it. He was a great mathematician and developed the system during the boom of exports during 13th century in Italy which became widely used by merchants wanting to keep track of theirs sales. It was in 1494 that he decided to write a book including some of his mathematical findings. The recorded history of the description of double entry bookkeeping was done by Benedikt in 1458 in his work: Book on the Art of Trade. The Accounting Equation is an essential notion in financial accounting and it is the foundation of double entry accounting. Every business transaction will have an effect on a company's financial position. The financial position of a company is measured by assets(what it owns) , liabilities(what it owes to others), owner's equity. We can also called accounting equation as the balance sheet equation which offers us a simple way to understand how these three amounts relate to each other. Any purchase or sale by an accounting equity has an equal effect on both sides of the equation. Therefore, for each transaction, the total debits equal the total credits. Thus, It can be expressed as Assets = Liabilities + Equity. In another ways , it is also written as Equity = Assets – Liabilities and Liabilities = Assets – Equity.
Business owners must not underestimate the importance of accounting equation analysis. The accounting equation is of great help and assistance to accounting professionals. Here are mentioned some of the important benefits of accounting equation. Accounting...
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