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What is accounting, accounting equation?

What is the Accounting equation?

  • Please explain to me the philosophy behind the Accounting Equation?

  • Answer:

    The philosophy behind double entry accounting is that for every debit (DR), there is a corresponding credit (CR). It is completely arbitrary which items are debits & which ones are credits. DR = CR for each entry. As far as the Assets + Liabilities = Equity, imagine putting down $100,000 on a $500,000 house. DR Plant Asset (House) $500,000 CR Cash $100,000 CR Accts. Payable $400,000 Asset + Liabilities = Equity (what house is worth in trade or collateral) $500,000 +(-$400,000) = $100,000

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