I keep hearing about the accounting equation, but I’m not sure what it actually represents or why it’s so essential in accounting. Can someone explain what the equation is
The accounting equation is: Assets = Liabilities + Owner’s Equity
It shows that a company's resources (assets) are financed by debts (liabilities) and the owner's investment (equity). This fundamental equation keeps the balance in double-entry accounting.
A foundational idea in accounting is the accounting equation, which reads: Assets = Liabilities + Owner's Equity. The fundamental relationship between a company's assets, liabilities, and owner equity is represented by this equation.
Assets = Liabilities + Owner's Equity is the accounting equation, a basic financial formula that shows a company's financial status by weighing its assets against its liabilities and owner's stake. Double-entry accounting is based on this equation, which guarantees that the books are accurate and balanced for each transaction.
