Question 6

Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

Answer

According to the dual-aspect concept, every transaction simultaneously, has two effects of equal amount, i.e. debit and credit. However, in any case, the equality of total assets with the total claims of business (sum of capital and liabilities) is not disturbed. This equality is algebraically represented as:

Asset = Total Claims

Asset = Liabilities + Capital

or, Liabilities = Asset − Capital

or, Capital = Assets − Liabilities

In any circumstance the above equation cannot be changed. For example,

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Accounting equation remains intact under all circumstances. Justify the statement with the help of an example.

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