[accountinglads]

All financial transactions will have effects on the accounting equation since at least two aspects are altered in the accounting equation such as assets, liabilities or equity. As an example, when a company takes a loan with a bank, asset (cash) and liabilities (loan payable) are increased. In the same way, when the company makes revenue, the assets (either cash or account receivable) will increase and the equity (retained earnings) will increase. By knowing how the transactions affect the equation, the correct financial reporting will be assured and the manner in which resources are being utilized or created can be emphasized.

Read more: https://www.wallstreetprep.com/knowledge/accounting-equation/

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