Basic Accounting Equation Week 1 What are the implications of the basic accounting equation You must respond to at least two of your classmates postings to receive full credit Basic Accounting Equation According to Chapter One of Survey of Accounting An Introduction to Accounting the implications of the basic accounting equation is understood to be the assets of a business and the creditor Creditor claims are called liabilities and investor claims are called equity The amount of total assets is equal to the total of the liabilities plus the equity 2010 Edmonds T P Olds P R p 8 An example of a basic accounting equation can be seen below Assets Claims Followed by Claims Assets Liabilities Equity Claims Assets Liabilities Equity 1100 500 600 In other words by taking the following equation and applying it to an example of an XYZ Company or an Owner having a total asset of 1100 a total of 500 in liabilities and equity in the total amount of 600 can be broken down as such Having and implementing the basic accounting equation is a very essential tool to have when trying to determine one s own assets or lack thereof The basic accounting equation also offers a better understanding of how each of these relate to one another The assets equal a company s resources while the liabilities are the obligations leaving the equity to be whatever amount is left remaining If done correctly the records from the accounting equation will always be in balance Reference Edmonds T Olds P McNair F Tsay B 2010 Survey of Accounting 2nd ed New York McGraw Hill Irwin
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