Accounting equation

Understand the Problem

The question is referring to the accounting equation, which represents the relationship between a company's assets, liabilities, and equity. The equation is commonly stated as Assets = Liabilities + Equity, and understanding this concept is fundamental in accounting.

More Information

The accounting equation is a fundamental principle in accounting that lays the foundation for the double-entry bookkeeping system. The equation ensures that a company's balance sheet is balanced, meaning that all financial operations are accurately recorded.

Tips

A common mistake is not aligning changes in one part of the equation with corresponding changes in another. For example, if assets increase, there must be an equal increase in liabilities or equity.

Sources

• Accounting Equation: What It Is and How You Calculate It - investopedia.com
• Understanding the Accounting Equation Formula - Tipalti - tipalti.com
• The Accounting Equation | A Simple Model - asimplemodel.com