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rafapak


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extended accounting equation
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Extended Accounting Equation - 3

 

1. CAPITAL + (INCOME - EXPENSES) - DRAWINGS = ASSETS - LIABILITIES

 

2. ASSETS + EXPENSES + DRAWINGS = CAPITAL + LIABILITIES + INCOME

 

I dont know what is the rule according to which we can rearrange equation number one so that we arrive at equation number two where everything is with plus sign. Can you tell me why we can rearrange equation one?



-- Edited by rafapak on Saturday 8th of November 2014 08:11:46 PM

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bro0010


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Simple. Debits must equal Credits.

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MarkS


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Simple maths assume the following

Capital = 10

Income = 9

Expenses =2

Drawings = 4

Assets = 18

Liabilties = 5

Equation 1      -      10 + (9-2) - 4 = 18 - 5    ie 13 = 13

Equation 2      -      18 + 2 + 4 = 10 + 5 + 9  ie 24 = 24

 



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Providing accounting, bookkeeping, payroll and tax services to small and medium sized businesses across Central Scotland and beyond.
rafapak


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thanks for reply,




-- Edited by rafapak on Sunday 9th of November 2014 09:56:25 PM

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MarkS


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The 1st equation is

10+9-2-4=18-5

is just a case of simple maths

add 2 to both sides

10+9-4=18-5+2

add 4 to both sides

10+9=18-5+2+4

add 5 to both sides

10+9+5=18+2+4

which is the same as 2nd equation

as said simple mathematics



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Providing accounting, bookkeeping, payroll and tax services to small and medium sized businesses across Central Scotland and beyond.
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