The accounting equation is all about the total asset of the company and it is considered equal to the liabilities and equity of the shareholders. Without a double entry accounting system, the accounting equation is not possible and assets show about the company financial condition and if the company possesses many liabilities which show companies financial instabilities. There are few important points which must be included in the accounting equation.
For maintaining the company's balance, company always uses double entry system because if company does not maintain its all the transaction will face challenges, for example, if a company takes any loan amount from any money lending company or any bank, it will be called as companies assets and at the same time it is called companies liabilities because it has to repay to the lending organisation and when a company purchases any inventory then it pays some amount to other companies and at the same time its asset increases.
Every company needs to maintain all its transactions. That is why accounting equation calculators are used because they have to calculate the transactions done in the company but accounting requires research to calculate the data as well as it requires practice.
The format of the accounting equation is related to its financial part because it helps in maintaining the balance sheet of a company and it is related to the income statement and cash flow statement. The accounting formula which is used in the accounting equation is known as assets = liabilities and shareholders' equity as this equation makes the foundation of double entry accounting.
There are various challenges in Accounting which one has to encounter in managing a company or organisation. These are the questions on accounting equations which will be helpful in understanding the components of accounting.
Answer- Assets, liabilities and equity held by the owner.
These three components are responsible for the accounting equation.
Answer- Accounts payable - Current liabilities
Property, plant and equipment- Noncurrent assets
Inventory: current assets
This is how you can solve accounting problems vested in various organisations and companies which help in improving the companys profit.
Every company needs to maintain its cash flow to solve accounting problems and to maintain the liquidity of cash to run the company smoothly. Cash flow is also important to maintain because companies have to maintain account receivable and accounts payable and maintaining and collecting cash reports will help the company in managing any kind of transaction related issues. There are some points which must be included in basic accounting problems.
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