Recording of Transactions-I

At any point of time resources of the business entity must be equal to the claims of those who have financed these resources. The proprietors and outsiders provide the resources of the business. The claim of the proprietors is called capital and that of the outsides is known as liabilities. Each element of the equation is the part of balance sheet, which states the financial position of the business on a particular date.

When we analyse the transactions, we actually try to know that how balance sheet of a business entity gets affected. Asset side of the balance sheet is the list of assets, which the business entity owns. The liabilities side of the balance sheet is the list of owner’s claims and outsider’s claims, i.e., what the business entity owes. The equality of the assets side and the liabilities side of the balance sheet is an undeniable fact and this justifies the name of accounting equation as balance sheet equation also.

For example, Rohit started business with a capital of Rs. , , . From the accounting point of view, the resources of this business entity is in the form of cash, i.e., Rs. , , .

Sources of this business entity is the contribution by Rohit (Proprietor) Rs. , , as Capital . (For the purpose of understanding we will refer this example as example , throughout the chapter ) . If we put this information in the form of equality of resources and sources,