The basic accounting equation

Introduction

The purpose of this essay is to present the general context of the theory of the basic accounting equation from the record of operations, using authors such as: Charles T. Horngren, Andrés Nieto Salina and Rosa María Rodríguez Crespo, who mentions that the accounting technique is based on the law of chance (cause and effect) and the so-called double entry theory, from the father of accounting Luca Pacioli.

Basic accounting equation

In a company or entity, the financial statements are those that indicate and demonstrate the financial situations of the same, which we call financial information, which helps us to make decisions; for this you must know what is the accounting tool to generate the financial statements? "The basic accounting tool is the accounting equation, where it summarizes the resources of a company and the rights against those resources" (Horngren, 2004, p.12).

Theory is a speculative knowledge considered independently of any application; set of laws that serve to relate a certain order of phenomena. A theory is an idea by which a truth is explained; when the theory is proved it becomes a principle or a law.

The law of chance tells us that an effect corresponds to every cause and if this applies to the theory of double entry, it would tell us that a charge for the same amount corresponds to every charge, that a series of charges corresponds to a credit for the same amount, that a charge corresponds to a series of subscriptions for the same amount, or that in a set of charges corresponds to a set of subscriptions for the same amount. These are relatively applicable to assets and liabilities.

“The asset is made up of the economic resources of a company, which are expected to generate benefits in the future (…) the liability consists of the rights of other entities or people. They are economic obligations payable to those entities or persons, jointly called creditors ”(Horngren, 2004, p.12)

The difference between assets and liabilities is called stockholders 'equity, which is what the company truly owns and where the partners' dividends are split.

"The double game theory ensures that the equation A = P + C, A = P + (C + R) and A = P + (C + (IE)), or A + C = P + C + I; where we can define that the accounts of origin appear on the right side of a T and the application accounts appear on the left, therefore every application has an origin ”(Rodríguez, 1991, p. 19)

With this, it is verified that the operations in the accounts in terms of charge and credit are correct, that is, that each charge corresponds to a credit for the same amount. For example, a charge to an asset account means an increase in assets; to an increase in the corresponding assets: a) increase in liabilities, b) increase in capital, c) increase in results, d) decrease in assets, e) combination of the above.

Unlike a credit in assets, it means a decrease in assets: a) decrease in liabilities, b) a decrease in capital, c) decrease in results, d) increase in assets, e) combination of the above. To which we can say that any increase or decrease on the left side has the effect of any effect or decrease indicated on the right side and vice versa.

"The systematization of the so-called principles of the double entry is due to the monk Fray Luca Pacioli, who investigated the plot of the patrimonial and mercantile reality of his time" (Nieto, 2004, p.223).

conclusion

As a result of the different authors, we can understand that the theory of the basic accounting equation is made up relatively of double entry, which tells us that every charge corresponds to a subscription, or that every application has an origin, this serves to be able to understand where the accounts reflected in the financial statements of a company are born and see relatively if they are being applied correctly and functionally, in order to make appropriate decisions in the organization.

References

T, Horngren.C. (2004, 5th edition). Accounting an applied approach in Mexico. State of Mexico: Pearsion Education de Mèxico SA de CVNieto, SA (2004). Business Administration: Mad. Rodríguez, CRM (1991). Introduction to accounting. Mexico: Salvat.