Accounting Equation is the mathematical equation that shows the relation between assets, liabilities and stockholders’ equity . It is expressed as: Accounting Equation Figure (1) Assets (A): Assets are those items that provide value for money and future economic benefit for an organization. Assets of an organization may be in these two forms: Tangible or intangible form. Example: Cash, Short-term investments, Inventories, Accounts receivable , Equipment, Supplies and Goodwill . Liabilities (L): Liabilities are obligations of the business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, Long-term liabilities. Example: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable. Stockholders’ equity (SE): Stockholders’ equity are those assets of the business to which they stake claim. It consists of two parts: Common stock and Retained earnings . To represent: The accounting equation with dollar amounts of Incorporation A.

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Chapter 1, Problem 21Q

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Introduction:

Accounting Equation is the mathematical equation that shows the relation between assets, liabilities and stockholders’ equity. It is expressed as:

Accounting Equation

Figure (1)

Assets (A): Assets are those items that provide value for money and future economic benefit for an organization. Assets of an organization may be in these two forms: Tangible or intangible form. Example: Cash, Short-term investments, Inventories, Accounts receivable, Equipment, Supplies and Goodwill.

Liabilities (L): Liabilities are obligations of the business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, Long-term liabilities. Example: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable.

Stockholders’ equity (SE): Stockholders’ equity are those assets of the business to which they stake claim. It consists of two parts: Common stock and Retained earnings.

To represent: The accounting equation with dollar amounts of Incorporation A.

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