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The accounting environment

The accounting equation in action

13.1 The accounting equation

The accounting equation is a simple expression of the fact that at any point in time
the assets of the entity should be equal to the equity plus the liabilities.

For every transaction that an entity enters into their will be a dual effect.

The dual effect principle states that every transaction has two financial effects.

 If, for example, you spend $2,000 on a car and pay for it by cheque, you will
have $2,000 less money in the bank, but you will have acquired an asset worth
$2,000.

 If you owe a payable $100 and sent them a cheque for that amount, you will
owe $100 less than before, but you will have $100 less money in the bank.

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