12/6/13 Financial Accounting Essay
The expanded accounting equation is: Assets = Liabilities + Owner’s Capital – Owner’s Drawings –
Expenses + Revenue. This equation is the basis for recording the financial transactions of an organization
or even an individual. When an accountant is going through the transactions of a company, he or she
must look at all of these cash 3ows and determine where to place the debits and credits. Same rule
applies for an individual.
The debits on the le5 and credits on the right in regards to the journal entries, is part of the
double entry accounting system. Also, along with the double entry accounting system, it must be accrual
based accounting. This is because of GAAP regulations. GAAP in an acronym for “generally accepted
accounting principles”. This is the most widely known, and commonly used practice in regards to
accounting and bookkeeping.
The -rst part of the accounting equation is assets. Accounts that belong in the assets include
