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What is the Accounting Equation? Meaning.
The Accounting Equation is the foundation of many double-entry accounting systems, which state that assets equal liabilities plus owners' equity.
In other words, the two sides of the equation must always be in balance
The accounting equation is:
Assets = Capital + Liabilities
The accounting equation can also be written as:
Capital = Assets - Liabilities
Another variation of the accounting equation is to write it as:
Liabilities = Assets - Capital
Instead of the word 'Capital' you may also find 'Owners Equity' or 'Shareholders' Equity' or 'Stockholders' Equity' being used, which all indicate the same.
Expanded Accounting Equation
Capital can be split up in a number of elements, resulting in the so called 'expanded accounting equation':
Assets = Capital + Liabilities = (Common Stock + Retained Earnings - Dividends + Revenues - Expenses) + Liabilities
Usages of Accounting Equation. Applications
Compare: Accrual Accounting
This ends our Accounting Equation summary and forum.
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