Basic Accounting Equation
The basic accounting equation is Assets = Liabilities + Owner's Equity, showing the relationship between a business's resources and claims.
Summary
The basic accounting equation is Assets = Liabilities + Owner's Equity, showing the relationship between a business's resources and claims. Assets include cash, equipment, inventory, and accounts receivable. Liabilities are obligations like loans and payables. Owner's Equity represents the owner's claim after liabilities are settled. The expanded equation incorporates Owner's Capital, Revenue, Expenses, and Drawings. All transactions affect at least two accounts, ensuring the equation remains balanced at all times.
🧠 Key Concepts
- Accounting equation
- Assets definition
- Liabilities definition
- Owner's equity
- Examples of assets
- Examples of liabilities
- Expanded equation
- Transaction impact
- Equation balance
- Owner's capital
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Basic Accounting Equation
The basic accounting equation is:
Assets = Liabilities + Owner's Equity
Definitions:
Assets Resources owned by the business. Examples: - Cash - Equipment - Inventory - Accounts Receivable
Liabilities Obligations of the business. Examples: - Loans - Accounts Payable - Salaries Payable
Owner's Equity The owner's claim on the assets after liabilities are paid.
Expanded Accounting Equation: Assets = Liabilities + Owner's Capital + Revenue - Expenses - Drawings
This equation must always be balanced. Every transaction affects at least two accounts.
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