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Fundamental Accounting Equation

Assets = Equities

This is the fundamental accounting equation which is a formal expression of dual aspect concept as we see all accounting procedures are derived from this equation. This reflects two kinds of equities. The equation expression will become;

Assets = liabilities + owners equity

Every transaction has a dual effect on accounting records. Accounting systems are setup to record both the aspects of a single transaction. This is called double entry system.

Example

To illustrate a dual aspect concept; suppose Mr. A starts a business with a capital of rupees 30 thousands. There are two aspects; one is cash that is an asset comes to the business and the second business has to pay to the proprietors a sum of thirty thousand which is taken as proprietor’s capital

Cash = capital

30000 = 30000

The term accounting equation also express relationship of equities to the assets. It can be technically stated as for every debit (DR), there is an equivalent credit (CR)