Combining the Accounting equation and the Double entry principle

Accounting is a visual discipline. The Accounting equation could be expressed in T-account form as follows:

accounting equation




Income is closely linked to increases in assets OR a decrease in liabilities. If a business sell goods or render services it will immediately receive cash or the future right to the cash i.e. debtors. Both cash and debtors are assets. When third parties i.e. creditors encourage the business to settle debt as soon as possible an income discount received will result which have the effect of reducing liabilities. Examples of income includes: Sales, Services Rendered, Rent Received, Interest Received, etc.

Income increases the equity of the owner(s). The more the income, the more the business owes the owner(s).