The accounting equation states that Assets equal Liabilities plus Equity, forming the foundation of double-entry accounting.
Questions & Step-by-step Solutions
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Q
Q: What is the accounting equation?
Solution: The accounting equation states that Assets equal Liabilities plus Equity, forming the foundation of double-entry accounting.
Steps: 5
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.
