What is the Expanded Accounting Equation for a Single Proprietorship?
In a single proprietorship, the owner’s assets, liabilities and personal expenses should be separate and distinct from that of his or her business. Hence, the reader of the Balance Sheet report will have a ready reference about the composition of the Owner’s Capital account if the expanded accounting equation is used. Whereas the fundamental accounting equation for a single proprietorship is: Asset= Liabilities + Capital The expanded accounting equation for a single proprietorship would be: Assets= Liabilities + Owner’s Capital + Revenues – Expenses – Capital Drawing As an aid to understanding this expanded accounting equation, the components of the equation are explained as follows: Assets- This is the value of the business’s available resources. In a sole proprietorship, examples of accounts included under this component are cash, accounts receivables, inventory on hand, prepaid expenses, office equipment and machinery, and all other resources used as tools for carrying out the busin
