I am currently doing my AAT level 3 diploma in Accountancy and I am interested to learn if there is a specific reason why the equation is taught (from a very early stage) as Assets = Capital + Liabilities. The following is an extract from my course book.
"The Statement of Financial Position shows the relationship between the elements that comprise the accounting equation, i.e. Assets= Capital + Liabilities. On preparing the Statement of Financial Position, however, we often change the order in which we present the elements within the equation as, quite often, the Statement of Financial Position is presented in a format whereby it shows Assets less Liabilities = Capital."
So what is puzzling me is why aren't we taught the equation as A-L=C right from the very start. The fact that it is an equation means that it makes little difference how it is presented, for example it could also be L=C-A or any other such variation, but if the aim is to prepare financial statements in the A-L=C format, would't it just make most sense to teach it that way from the outset? Don't get me wrong, I'm not losing any sleep over it, it's just intriguing.
Thank you.
"The Statement of Financial Position shows the relationship between the elements that comprise the accounting equation, i.e. Assets= Capital + Liabilities. On preparing the Statement of Financial Position, however, we often change the order in which we present the elements within the equation as, quite often, the Statement of Financial Position is presented in a format whereby it shows Assets less Liabilities = Capital."
So what is puzzling me is why aren't we taught the equation as A-L=C right from the very start. The fact that it is an equation means that it makes little difference how it is presented, for example it could also be L=C-A or any other such variation, but if the aim is to prepare financial statements in the A-L=C format, would't it just make most sense to teach it that way from the outset? Don't get me wrong, I'm not losing any sleep over it, it's just intriguing.
Thank you.