An accounting equation is used by an accountant when recording
transactions on a company.
Each transaction will be written, collected, grouped, and analyzed using
the basic equation of accounting.
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The important thing to note is the basic
equation of accounting should be able to show the balance between assets with
equality, credit with debit.
Wealth of the company is assets. The right to property is the right to
wealth (equality). From both of variables we can create a simple equation:
Assets = Equality
Equality or property rights is divided into 2, namely the rights of the
creditor (lender) and the property itself. The equality right of the creditor
is called the debt of the enterprise, while the equality rights of the firm are
called capital. Here the equation:
Assets = equality
Assets = Debt (Liabilities) + Capital
Capital = Assets – Debt (Liabilities)
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