Accounting equation: Assets= Liabilities + Equity 1. Is the Accounting Equation, by definition, true for any...

Accounting equation: Assets= Liabilities + Equity

1. Is the Accounting Equation, by definition, true for any business entity? Do you envision any circumstances under which this equation would ever become imbalanced? Which element of this equation would be responsible for that occurrence?

Expert Solution

It is very true that the accounting equation is "Assets = Liabilities + Equity"
This accounting equation applies to all kinds of businesses and is valid everywhere. It is considered that this accounting equation involves all the assets, liabilities and equity share capital which the business ownes.
Under various circumstances, this accounting equation would become imbalanced.
These are as follows :

whenever the business owns more liabilities then its assets
disturbance in equity can also imbalance the accounting equation
furthermore, if asstes owned by the business are more than its liabilities plus equity, then accounting equation can be in balanced.

There are various elements which are responsible for business occurrence and these elements are also responsible for creating imbalance/balance in accounting equation.
These can be :

various types of current as well as fixed assets
various type of current as well as fixed liabilities
equity share capital

ekkarill92 answered 2 years ago

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