If the left side of the accounting equation increases, the right side of the equation must...

If the left side of the accounting equation increases, the right side of the equation must aslo increase. True or false? Explain in 100-150 words

Expert Solution

Answer :-

Accounting equation is based on double entry accounting i.e. for every entry you will have both debit and credit.

Accounting Equation ------ Asset = Liability + Owner capital

So in above equation we have asset on debit side and liability and owner capital on liability side

Lets take 2 example

1) You a qualified CA decided to Start Practice and agreed to investment $10000.

In above case at begining your Asset, Liability and Owner capital was all Zero

When you invest $10000 in Business.. Business get Cash which is Asset and owner capital is 10000

so Equation looks ------- Asset(10000) = Liability (0) + Owner Capital (10000)

2) You buy a laptop on credit for $1000.

Since laptop is asset your asset increase by $1000 and since you need to pay $1000 to supplier it is your liability

so Equation looks ------- Asset(11000) = Liability (1000) + Owner Capital (10000)

Always Asset should be equal to Liability + Owner capital hence we can say above statement is correct

ekkarill92 answered 1 year ago

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