The accounting equation underlies the process used to capture the effect of economic events. The equation (Assets = Liabilities + Owners’ Equity) implies an equality between the total economic resourcesof an entity (its assets) and the total claims against the entity (liabilities and equity). It also implies thateach economic event affecting this equation will have a dual effect because resources always must equalclaims.

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business, at least two accounts should be affected I.e. both the debit side and the credit side should be equal. The Accounting Equation is