Accounting Equation

the accounting equation is based on  the simple idea that a business is worth the sum of resources that belong belong to business less what it owes.
the resources that are in a business are called assets.the part of these resources that are supplied by the owner are called capital.
those that are supplies by others are called liabilities.
therefore when the owner of business introduces resources, the accounting equation can be constructed as follows
Assets=Capital
when others supplied resources then equation change
Assets=Capital+Liabilities
The 'basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.
Assets = Liabilities + Capital
Balance sheet An elaborate form of this equation is presented in a balance sheet which lists all assets, liabilities, and equity, as well as totals to ensure that it balances How it works For example: A student buys a computer for $945. This student borrowed $500 from his best friend and spent another $445 earned from his part-time job. Now his assets are worth $945, liabilities are $500, and equity $445. The formula can be rewritten:     Assets − Liabilities = (Shareholders or Owners equity or Capital)[1] Now it shows owner's interest is equal to property (assets) minus debts (liabilities). Since in a company owners are shareholders, owner's interest is called shareholder's equity. Every accounting transaction affects at least one element of the equation, but always balances. Simplest transactions also include:[2] . Transaction Number Assets Liabilities Shareholder’s Equity Explanation 1 + 6,000 +            6,000 Issuing stocks for cash or other assets 2 + 10,000 + 10,000 Buying assets by borrowing money (taking a loan from a bank or simply buying on credit) 3 − 900 − 900 Selling assets for cash to pay off liabilities: both assets and liabilities are reduced 4 + 1,000 + 400 + 600 Buying assets by paying cash by shareholder's money (600) and by borrowing money (400) 5 + 700 + 700 Earning revenues 6 − 200 − 200 Paying expenses (e.g. rent or professional fees) or dividends