A. Accounting equation is to be considered as a foundation of double accounting system, this is also called balance sheet equation and it represent the relationship between the assets , liability and owners equity. Accounting equation is based on double entry accounting which state that every transaction has two aspect one is debit and another is credit. It has three component i.e. Asset, Liability , owners equity. Assets are the company's resources that company own Liability are the company obligations that company owes Owners equity - it is the amount invested in the company by the owners B. Example 1. Capital contribute in the business, it increase the cash(Debit) and owners equity(Credit) 2 . Purchase furniture in cash , it increase non current asset(Debit - Furniture) and decrease current asset cash(Credit - Cash) 3 . Purchase goods on credit, it increase current asset(Debit - stock) as well as liability(Credit - creditor) 4 . sale gods on credit, it increase current asset(Debit - Debtor) and decrease current asset(Credit- Stock) C. basic financial statement are Balance sheet, income statement, cash flow statement, Statement of share holders equity Balance sheet are the important element from accounting equation's point of view because it contain