Understanding the basic equation of accounting is the relationship between assets, debts, and capital owned by a company. The purpose of the basic accounting equation is the basis for recording in the accounting system which means that every time a transaction occurs must be recorded in two aspects, they are assets and liabilities. A professional Accountant surely understands this outside of his head.
The basic equation in accounting is the balance between the asset side and the liability side. If changes occur due to financial transaction events, then the balance must also be maintained. This is the basis for being able to do accounting such as keeping a journal and presenting financial statements.
To make it easier for you to learn to account, you must understand the concept of ALOE. By using the ALOE concept you will more easily learn the basic concepts of accounting. Following is the explanation from ALOE.
A = Assets
L = Liabilitias
O E = Owner’s Equity
The following basic accounting equations that apply based on the ALOE concept, earlier:
Assets = Liabilities + Capital
Assets themselves are assets were as an economic source that has a use-value for the organization or company. While the obligation consists of debt which is a liability. In addition, there is a business owner’s equity or business capital with the difference between the liability of the business owner in the future.
Before learning more, an accountant must first understand the meaning of an account. the account is an important element in the recording. The account itself serves as a form for recording similar transactions and can change the composition of assets, liabilities, and also venture capital making it easier for an accountant to prepare reports.
According to Financial Accounting Standards, accounts have two types;
– Real accounts: accounts recorded on the balance sheet include assets, liabilities, and also capital;
– Nominal account: the account that is recorded on the profit/loss statement which includes income and expenses.
Each account owns its number along with its balance. The account name is usually followed by the account number and also the normal balance. A normal balance is a balance that places an account in a debit or credit position.