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Topic Content:
- Accounting Equation
- Summary of Accounting Equation
- Worked Examples on Accounting Equation
The accounting equation is the fundamental framework of the entire financial accounting process. The whole of accounting is based on this equation.
The equation can be expressed as:
\(\scriptsize Assets = Capital + Liabilities\)
Assets: These can be defined as the properties or resources of a business — for example, Land and Building, PremisesThe premises of a property consist of the land and buildings on it, usually of a business or organization. More, Motor Van, Cash in hand, etc.
Liabilities: These are obligations to pay out money sometime in the future. It is the indebtedness of the firm to outsiders. Examples include: Loans, Creditors, Overdrafts, Debentures, etc.
Capital: This is the total money provided by the owner to start a business. It is equally referred to as the: "NET Worth or Owners Equity".
Assets: These are the properties or resources owned by a business that have value. Examples include
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