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Modern/Accounting Equation Approach

According to accounting principle, every debit in a transaction has equivalent credit.” It means the value of benefits received should be equal to the value of benefits given.

Accounting equation states that the assets of a business are always equal to the total of liabilities and capital. It follows the equation as


Assets = Liabilities + Capital


A business transaction will result in the change in either of the assets, liabilities or capital of the firm and even after the change the assets will be again equal to the total of capital and liabilities. If a business transaction results in the increase of assets, there will also be corresponding increase in the amount of either capital or liabilities by the same amount.

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