Saturday, March 31, 2007

Critical point in Balance Sheet Equation

Hello guys ....
it's second time to write information .. Critical info. to you . -Our mission to support every one every man have works in this round that is plenty of Accounting principles with analytical manners in order to take big tour with decision making process .. Let the game begin .. - Some people ask me how the balance sheet equity generated ?
As it is : Assets = Liabilities + Owner's Equity
I ask my self this question when I was 18( first year in my Academic study) but I didn't find the answer ? Any way ! I knew in early time (year ago) the answer .. & how it was figured .. The Accountants say that the act of any firms,companies,stock companies,association,partnership Etc. consist of two sides the main basis of the Financial Accounting (The mother of all branches in Accounting tree) .
1- The first side is the (resources) that is called in Accounting (Assets) this resources functionality finance the firm to continue it's Technical job & deal with other firms,enable us to perform our function in society .
2- The second side Which was derived from The main side (Resources) is the (Sources of resources) which called (Liabilities).
classified in two broad categories according to the life of the liability and when will you return it to their sources
A-Temporary sources which The owners have eventually give it back to thier sources (So-called Liabilities)
B-Permanant sources which The owners contribute with in the firm .. (So-called Owner's equity) And finally the main basis in Accounting say that the accounts & records have to balance .. thus the Theory of Equation began from this point , that the resources must equal the sources of resources .So it would be :
(The Analysis) :
1- Resource = Sources of resources
( It's the sources we obtain our resources)


2- Assets = Liabilities + Owner'sEquity
(Our Resources) (temporary) (Permanent)
Assets: It's the available amount that enable the firm to function. Liabilities: It's The amount of Liabilities that the firm owes to lenders. Owner's equity: The amount that was contributed by firms's owner.

best hopes,
Mostafa

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