Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding of decrease in another asset, or increase in a specific liability, or increase in owner's equity.
Example:
Investment by owner are the assets put into the business by the owner. These investment in the business increase owner's equity.
Withdrawal of cash or other assets by owner could be recorded as a direct decrease of owner's equity (decrease total owner's equity). However, it is generally considered preferable to use a separate classification referred to as drawings to determine the total withdrawals for the accounting period.
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