Abstract: This paper attempts to explain how an accounting equation evolves overtime. The paper looks at the accounting equation by using trade off theory and positive accounting theory lenses. The accounting equation is viewed as living or dynamic and changes according to human behavior or managers of company’s behavior. Regression model and descriptive statistics are used to show the relationship between total assets, liabilities and owners’ equity. The model is then used to show new form of accounting equation, rates of change of liabilities and owners’ equity. In this paper the writer finds new approaches or looks at accounting equation, the rates of change of liabilities and capital in relation to assets and shows the proportion of the two components of assets i.e. liability 64% and capital 36% to the asset. Finally the researcher explains the constant term which is not explained by authors of accounting field. This paper shows for the first time new form of accounting equation, different rates of change for the two components of assets and finally proportions of the owners’ equity/ capital and liabilities components on assets.Abstract: This paper attempts to explain how an accounting equation evolves overtime. The paper looks at the accounting equation by using trade off theory and positive accounting theory lenses. The accounting equation is viewed as living or dynamic and changes according to human behavior or managers of company’s behavior. Regression model and descriptive sta...Show More
