There are some things I need to state before we get started. I am a CPA. Don’t quit reading thinking this will be another boring paper. Second, I am a Christian. How can a CPA be a Christian? CPAs are held to a higher ethical standard than any other profession. If you plan on sitting in front of an IRS auditor, who is going over your client’s tax return, you better be a truthful, ethical, and a praying person. A good CPA should have a healthy fear of the Lord and a healthy knowledge of IRS laws.
On a sidenote, when asked if I am conservative, I say “If I were a plumber, I would wear suspenders and a belt?”
Any accountant who made it through Accounting 101, without sleeping too much, can tell you the accounting equation. In its most simple form, the Accounting Equation is: Assets = Liabilities + Equity. But it can be restated as: Assets – Liabilities = Equity. We will use this restatement.
To explain the concept of Assets, Liabilities and Equity, let’s assume you live in a house. Your house, and the land it sets on, is the asset. It is an item that holds value and can be sold. The loan you got, so you could buy your house, is your liability (i.e. a promise to repay something in the future. Equity is the difference between what you own, your assets, and what you owe, your liability.Continue reading“The Accounting Equation and Salvation Equation, by J.E.H.”