What is the accounting equation?

by julius.brown , in category: Taxation and Accounting , a year ago

What is the accounting equation?

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1 answer

by london_lueilwitz , a year ago


The accounting equation, also known as the balance sheet equation, is a fundamental concept in accounting that represents the relationship between assets, liabilities, and owner's equity. It can be expressed as follows:

Assets = Liabilities + Owner's Equity

This equation shows that the total assets of a business must be equal to the total liabilities plus the owner's equity in order to maintain a balance. In other words, it states that the resources owned by a business (assets) are funded through a combination of debts or obligations to external parties (liabilities) and the investment or capital contributed by the owner(s) (owner's equity).