1. What is an accounting equation?
Assets = liabilities + capital is the accounting equation. It is considered as the foundation of double entry system
2. What are assets?
The resources controlled by an entity that possess future economic benefits for the entity
3. What are liabilities?
The debts or obligations of a business that have been arisen by a past event or transaction
4. What is capital?
The total amount of goods or cash that is invested in a business by the owner(s)
5. What is an elaborate form of accounting equation?
Balance sheet is an elaborate form of the accounting equation. Balance sheet shows the detail of all three elements of an accounting equation i.e. assets, liabilities and capital
6. What are the elements of an accounting equation?
There are three elements of an accounting equation assets, liabilities and equity/capital
7. What are the circumstances under which the value of capital declines?
Since Asset=Capital + Liabilities, if liabilities remain the same and there is a decrease in assets, the capital of a business would definitely decreases
8. How does the value of business capital increase?
A business can increase its capital by:
Injecting fresh capital in the form of cash, inventory, fixed assets etc.
9. Can capital be negative?
Yes, capital can be negative if a business constantly making losses over time
10. What are retained earnings?
Retained earnings are the accumulated amount of net incomes that are kept aside for the future growth and expansion of the company
11. How do expenses affect the accounting equations?
Expense decrease assets, expenses increase liabilities, expenses decrease the equity or capital of a business
12. How do revenues or incomes affect the accounting equation?
Revenues increases assets, revenues decreases liabilities and revenues increases the equity or capital of a business