Accounting Equation - Extended version

Assalamualaikum and  dear students,

As you all have learnt that the basic accounting equation consist of THREE main component that is ASSET, LIABILITY and EQUITY. The equation is none other and definitely ASSET = LIABILITY + EQUITY.

As for the extended version of accounting equation, I have broken the equity component into 4 elements. These 4 elements made up the total for the equity and those are Capital, Revenue, Expenses and Drawings. 

The changes or movement in these 4 elements will affect the changes in Equity. For example, the owner put more funds into the business, then the capital will expand. The increase in revenue exceeding its cost of sales or expenses thus resulting in profit will also affect the changes in the Equity. If the expenses is more than its revenue, then the Equity will decrease and drawings will also result in the capital reduction.

Please take note that, when we change to extended accounting equation, there will no usage of inventory as it will be put under expenses. This is due to the business having its own cost. First is the cost of sales and the other is normal operating expenses. Then, we eliminate the inventory element in the asset and replace it as expenses.

Attached below is the link to the exercise for you guys to download and I also made a video for its solution. Be kind to me to subscribe my channel and I will try further to improve my publication.

Download the link below for the exercise.

Extended Accounting Equation