The accounting equation states that Assets equal Liabilities plus Equity, forming the foundation of double-entry accounting.
What is the accounting equation?
Practice Questions
Q1
What is the accounting equation?
Assets = Liabilities + Equity
Assets + Liabilities = Equity
Assets = Liabilities - Equity
Assets + Equity = Liabilities
Questions & Step-by-Step Solutions
What is the accounting equation?
Step 1: Understand that the accounting equation is a fundamental principle in accounting.
Step 2: Know that the equation is written as: Assets = Liabilities + Equity.
Step 3: Identify what each term means: Assets are what a company owns, Liabilities are what it owes, and Equity is the owner's interest in the company.
Step 4: Realize that this equation must always balance, meaning the total value of assets must equal the total of liabilities and equity.
Step 5: Remember that this equation is the basis for double-entry accounting, where every transaction affects at least two accounts.
Accounting Equation – The accounting equation is a fundamental principle in accounting that shows the relationship between a company's assets, liabilities, and equity.
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