The accounting equation is used to analyze the effect of a transaction. Here's how it works:
Example 1: Purchase of Equipment using Cash
1. Equipment (Asset) increases by ₹50,000.
2. Cash (Asset) decreases by ₹50,000.
Liabilities and equity do not change; equation is balanced.
Example 2: Obtaining a Loan
1. Cash (Asset) increases by ₹1,00,000.
2. Loan (Liability) increases by ₹1,00,000.
Example 3: Increasing Cash from Operations
1. Cash (Asset) increases by ₹20,000.
2. Retained Earnings (Equity) increases by ₹20,000.