Accounting Equation
Accounting glossary · Understand, connect, apply
The accounting equation expresses the relationship Assets = Liabilities + Equity.
Example
A business buys equipment for 10,000 using 4,000 cash and a 6,000 loan. Net assets and liabilities each rise by 6,000.
Remember the difference
The equation balances after each properly recorded transaction. A balanced equation alone does not prove that every entry is correct.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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