Accounting
Basic

Accounting Equation

The foundation of double-entry bookkeeping: everything a business owns is financed either by debt or by owners’ capital.

Formula

Assets=Liabilities+EquityAssets = Liabilities + Equity

Variables

AssetsTotal resources owned
LiabilitiesWhat the business owes
EquityOwners’ residual claim

Example

Assets $500k, liabilities $300k → equity = $200k

Did You Know?

This single equation must always balance — it is why the report is called a “balance sheet.”

balance sheetdouble entryequity