Accounting Equation

Knowledge Center

• About
• Home
• Dictionary
• Encyclopedia
• Question?
• Views

• Register
• Log in
• Help

• Change & Organization
• Communication & Skills
• Decision-making & Valuation
• Ethics & Responsibility
• Finance & Investing
• HRM
• Knowledge & Intangibles
• Leadership
• Marketing
• Program & Project
• Strategy
• Supply Chain & Quality

Description of Accounting Equation. Explanation.

Definition Accounting Equation. Description.

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

• Bookkeeping
• Business finance
• Investing
• Business decision-making

Accounting Equation Special Interest Group Special Interest Group (624 members)

Accounting Equation Forum   Recent topics   What's the Use of Accounting? Why Accounting? What the use of accounting for businesses? Why are accountin...           Revenue versus Proceeds What's the difference between revenue and proceeds in accoun...

Best Practices - Accounting Equation

Expert Tips - Accounting Equation

Resources - Accounting Equation Quickly Reading a Profit and Loss Statement and a Balance Sheet Profit and Loss Statement Analysis, Analyzing a P&L...   Introduction to the Balance Sheet Initial Understanding of a Balance Sheet, Financial Statement Analysis, Accounting...     News about Accounting Equation         Videos about Accounting Equation         Presentations about Accounting Equation         Books about Accounting Equation         More about Accounting Equation

Compare: Accrual Accounting

Return to Management Hub: Ethics & Responsibility  |  Finance & Investing

More on Management  |  Return to Management Dictionary  | 

This ends our Accounting Equation summary and forum.