How to Solve Accounting Equations
Capital = Assets – Liabilities or in case we need to find the liabilities then its just reintroducing the same formula with liabilities as the main term of the expression. The same equation becomes
Liabilities = Assets – Capital
Sometimes the same set of information could be asked in a completely different format and the equation becomes
Assets = Liabilities + Owner’s Equity
The above mentioned relation basically is used when the accounting equation is used mainly for sole proprietorship.
Assets = Liabilities + Stockholders Equity
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How to Solve It suggests the following steps when solving a mathematical problem:
- First, you have to understand the problem.
- After understanding, then make a plan.
- Carry out the plan.
- Look backon your work.How could it be better?
If this technique fails, PÃ³lya advises: "If you can't solve a problem, then there is an easier problem you can solve: find it." Or: "If you cannot solve the proposed problem, try to solve first some related problem. Could you imagine a more accessible related problem?"
First principle: Understand the problem
"Understand the problem" is often neglected as being obvious and is not even mentioned in many mathematics classes. Yet students are often stymied in their efforts to solve it, simply because they don't understand it fully, or even in part. In order to remedy this oversight, PÃ³lya taught teachers how to prompt each student with appropriate questions, depending on the situation, such as:
- What are you asked to find or show?
- Can you restate the problem in your own words?
- Can you think of a picture or a diagram that might help you understand the problem?
- Is there enough information to enable you to find a solution?
- Do you understand all the words used in stating the problem?
- Do you need to ask a question to get the answer?
The teacher is to select the question with the appropriate level of difficulty for each student to ascertain if each student understands at their own level, moving up or down the list to prompt each student, until each one can respond with something constructive.
Second principle: Devise a plan
PÃ³lya mentions that there are many reasonable ways to solve problems. The skill at choosing an appropriate strategy is best learned by solving many problems. You will find choosing a strategy increasingly easy. A partial list of strategies is included:
- Guess and check
- Make an orderly list
- Eliminate possibilities
- Use symmetry
- Consider special cases
- Use direct reasoning
- Solve an equation
- Look for a pattern
- Draw a picture
- Solve a simpler problem
- Use a model
- Work backward
- Use a formula
- Be creative
- Use your head/noggin
Third principle: Carry out the plan
This step is usually easier than devising the plan. In general, all you need is care and patience, given that you have the necessary skills. Persist with the plan that you have chosen. If it continues not to work discard it and choose another. Don't be misled; this is how mathematics is done, even by professionals.
Fourth principle: Review/extend
PÃ³lya mentions that much can be gained by taking the time to reflect and look back at what you have done, what worked and what didn't. Doing this will enable you to predict what strategy to use to solve future problems, if these relate to the original problem.
The book contains a dictionary-style set of heuristics, many of which have to do with generating a more accessible problem. For example:
The technique "have I used everything" is perhaps most applicable to formal educational examinations (e.g., n men digging m ditches) problems.
The book has achieved "classic" status because of its considerable influence (see the next section).
- It has been translated into several languages and has sold over a million copies, and has been continuously in print since its first publication.
- Marvin Minsky said in his influential paper Steps Toward Artificial Intelligence that "everyone should know the work of George PÃ³lya on how to solve problems."
- PÃ³lya's book has had a large influence on mathematics textbooks as evidenced by the bibliographies for mathematics education.
- Russian physicistZhores I. Alfyorov, (Nobel laureate in 2000) praised it, saying he was very pleased with PÃ³lya's famous book.
- Russian inventor Genrich Altshuller developed an elaborate set of methods for problem solving known as TRIZ, which in many aspects reproduces or parallels PÃ³lya's work.
The basic accounting equation' is the foundation for thedouble-entry bookkeeping system. For each transaction, the total debits equal the total credits.
- Assets = Liabilities + Capital
In a corporation, capital represents the stockholders' equity.
Bold text'[Italic text] ==How it works== For example: A student buys acomputer 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 âˆ’ Liabilities = (Shareholders or Owners equity or Capital)
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 accountingtransaction affects at least one element of the equation, but always balances. Simplest transactions also include:
This equation is part of the transaction analysis model, for which we also write
- Owners equity = Contributed Capital + Retained Earnings
- Retained Earnings = Net Income âˆ’ Dividends
- Net Income = Income âˆ’ Expenses
The equation resulting from making these substitutions in the accounting equation may be referred to as the expanded accounting equation, because it yields the breakdown of the equity component of the equation.
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.
Luca Pacioli is notable for including the first published description of the method of keeping accounts that Venetianmerchants used during the Italian Renaissance, known as the double-entry accounting system. However, recently some historians and experts feel that this was already being used by the Arabs and Muslim traders with whom the Venetians would have had contact. They argue that even though Luca Pacioli formally introduced it to Europe, the credit should still go to Eastern merchants who had been using it years before. This claim is yet to be accepted by the academic community as it forces a rethink of several other aspects in this field.
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Answers:This is a corporate finance question.
Answers:Debit cash in bank (I assume its deposited in bank) and credit Loans owed Assets = liabilities plus owners equity A debit to the left side of the equation such an asset like a bank account is adding money. A credit would be removing money from it. A credit to the right side of the equation is also adding to those accounts. So when you add to loans owed, you are adding to loans owed or increasing loans owed. As your company makes profits and records them, that grows your owners equity, which a right side account..which means you are adding to your ownership stake in the business. If you pay back a portion of the loan in cash, you woud credit Cash in bank, and debit Loans owed...reducing both of those accounts. This is just a small summary of whats involved. A class would be of use perhaps.
Answers:first you have left something out here -- and second you need to take you homework quesitons to the homework section!!!
Answers:Open your Accounting 101 textbook and read. Hopefully you are only taking Accounting because you thought it would be an easy class, and are not an accounting or business major. Thank You.