The Sage Course Companion on Financial Accounting is an accessible introduction to the subject that will help readers to master key concepts and enhance their thinking skills in line with course requirements. It provides support on how to revise for exams and prepare for and write assessed pieces.

The Accounting Equation and Recording Transactions

The Accounting Equation and Recording Transactions

The accounting equation and recording transactions

Double entry bookkeeping is based on the idea that each business transaction has two effects. We can approach this idea by understanding that a business comprises a collection of assets. And for all those assets there are claims on the assets. At its most basic we can consider the balance sheet identity as follows:

Balance Sheet Identity

economic resources expected to benefit future activitiestitle to, or interests in the resources of the entity

The balance sheet represents a picture of the business at a particular point in time. We can think of assets as economic resources which will benefit the business entity in the future. For instance, firms buy plant and machinery because they believe that these ...

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