Basic Accounting Equation

Previous lesson: Define Accounting
Next lesson: What Are Assets?

Accounting as a whole is based on a single equation:


Balance in accounting

The word equation comes from the word equal.

For any equation, one side always equals another. Also, equations can be made out of anything.

For example:
1 Orange = $0,50
House = Walls + Doors + Windows + Roof
1 week = 7 days

So what does the accounting equation mean? Well, in order to answer that question we need to look at what each of the terms in the equation mean...

1. Assets
2. Liabilities
3. Owners Equity

Previous lesson: Define Accounting
Next lesson: What Are Assets?

Read Other Questions Relating to This Lesson
(along with their answers)

Click below to see questions and solutions on this same topic from other visitors to this page...

Accounting Equation Exercises 
Q: Tom Jones is the owner and operator of Jones Enterprise, a motivational consulting business. At the end of its accounting period, December 31, 2009, …

Q: WHAT IS THE MAIN PURPOSE OF THIS ACCOUNTING EQUATION? A: The main purpose of the basic accounting equation is to show the real-life financial …

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