Balance sheet equation is also called accounting equation. Balance sheet equation shows all the assets will always equal to owner's equity and outside liabilities. There is deep relationship of business's total assets and total liabilities. Total liabilities represents owner's equity and outside liabilities which are the sources of total asset's fund.

For knowing balance sheet equation, we take some examples which will helps you to understand balance sheet equation.

1st Example

Ajay started business with cash Rs. 330000, goods Rs. 200000 building Rs. 300000

 Total Assets                                  =   Total outside Liabilities + Total Capital Cash Goods Building 330000 200000 300000 Outside Liabilities Capital Nil 830000 830000 830000

2nd Example

Amount Withdrawn by him for personal use. Rs. 30000

 Total Assets                                  =   Total Liabilities + Total Capital Cash Goods Building (330000-30000) 200000 300000 Outside  Liabilities Capital Less drawing Nil 830000 -30000 800000 880000

3rd Example

Depreciation charged on building Rs. 20000

 Total Assets                                  =   Total Liabilities + Total Capital Cash Goods Building 300000 200000 (300000-20000) Outside Liabilities Capital Less depreciation loss Nil 800000 - 20000 780000 780000

4th Example

Fresh capital invested Rs. 60000

 Total Assets                                  =   Total Liabilities + Total Capital Cash Goods Building (300000+60000) 200000 280000 Outside  Liabilities Capital New capital Nil 780000 +60000 840000 840000

5th Example

Purchased goods from Ritu Rs. 7000

 Total Assets                                  =   Total Liabilities + Total Capital Cash Goods Building 360000 (200000+7000) 280000 Capital Creditors 840000 7000 847000 847000
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Accounting Education: Balance Sheet Equation Examples
Balance Sheet Equation Examples
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Accounting Education
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