Accounting Equation :

The source document is the origin of a transaction and it initiates the accounting process, whose starting point is the accounting equation.

Accounting equation is based on dual aspect concept (Debit and Credit). It emphasizes on the fact that every transaction has a two sided effect i.e., on the assets and claims on assets. Always the total claims (those of outsiders and of the proprietors) will be equal to the total assets of the business concern. The claims are also known as equities, are of two types: i.) Owners equity (Capital); ii.) Outsiders’ equity (Liabilities)

Assets = Equities

Assets = Capital + Liabilities (A = C+L)

Capital = Assets – Liabilities (C = A–L)

Liabilities = Assets – Capital (L = A–C)