Accounting Equation

Knowledge Center

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

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

Forum New Topic Forum about the Accounting Equation. What's the Use of Accounting? Why Accounting? What the use of accounting for businesses? Why are accounting information systems important for business? (...) 6   2 comments Revenue versus Proceeds What's the difference between revenue and proceeds in accounting? In which conditions we use proceeds? Thanks for y (...) 6   1 comments 🔥 NEW The Accounting Cycle The "accounting cycle" is the name of a procedure or process of recognizing, recording, summarizing, and analyzing econo (...) 3   Start a new forum topic about the Accounting Equation Share your opinion, knowledge and experience or ask a question (sign up for free first)

Information Sources Sign up Various sources of information regarding the Accounting Equation. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Quickly Reading a Profit and Loss Statement and a Balance Sheet Profit and Loss Statement Analysis, Analyzing a P&L This video explains that when we're reading a profit and loss statement as a director we should: - Not focus on the fig (...) Introduction to the Balance Sheet Initial Understanding of a Balance Sheet, Financial Statement Analysis, Accounting This video explains the main terms you need to read a balance sheet Assets: things a company owns that have value. - (...)

Research Links Sign up Automatically jump to further useful sources regarding the Accounting Equation. News Videos Presentations Books More

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.