Lesson 1, Topic 8
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# Accounting Equation

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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:

Assets = Capital + Liabilities

Assets: Can be defined as the properties or resources of a business. Example Land and Building, Premises, 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 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”.

### Summary of Accounting Equation:

Assets = Liabilities + Capital
Capital = Assets – Liabilities
Liabilities = Assets – Capital

### Worked Example on Accounting Equation:

You are required to complete the gaps in the following Table:

Solution:

(a) Assets = Liabilities + Capital

300,000 = L + 190,000

L = 300,000 – 190,000

L = 110,000

(b) Assets = Liabilities + Capital

A = 18,000 + 14,000

A = 32,000

(c) Assets = Liabilities + Capital

5,000,000 = 2,000,000 + C

C = 3,000,000.

#### Responses error: