Basic Accounting Equation


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Next lesson: What Are Assets?




Have you ever heard of the basic accounting equation? And do you know what this is? This equation is really, really important. In fact, all accounting entries are derived from this. If you really understand it, the rest of accounting is much easier. If you don't, you'll probably find the subject pretty hard. So listen up...

Accounting as a whole is based on a single equation: 

ASSETS = EQUITY + LIABILITIES


Accounting = Balance

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 

Return from The Basic Accounting Equation to Basic Concepts 

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


Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

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, …

MAIN PURPOSE OF
ACCOUNTING EQUATION
 
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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