What Is The Accounting Equation?

Posted by Ana Orwel on Tuesday, April 28, 2009

What is the accounting equation? Accounting equation is regarded as the fundamental on which the entire accounting double entry system of accounting is based.

The equation which is accepted all over the world is:

Assets= Liabilities + Shareholder’s or Owner’s Equity.

This shows how the assets are financed by borrowing money from someone or from the funds which is in the hands of the shareholder’s. The shareholders are regarded as the owners of the company because they own a percentage of the profit or loss on behalf of the company. If both the sides of the Balance Sheet i.e. the Assets and Liabilities tally with each other then we may say that the entire record keeping process has satisfied the accounting equation.

More resources on the accounting equation here.