The Accounting Equation

What is the formula for the accounting equation?

 The formula for the accounting equation is: Assets = Liabilities + Capital

 The equation states that the assets of a business are always equal to
the liabilities and capital of the business

 You can rearrange the equation so that you can find one of the three values if the other two are
known

o Liabilities = Assets - Capital

o Capital = Assets - Liabilities

Why is the accounting equation important?

 The accounting equation may be shown in the form of a statement of financial position

 The statement of financial position will be affected every time the business makes changes to
the assets, liabilities and capital

 Every single transaction will result in at least two changes which balance out

o Both sides of the equation could increase by the same amount

o Both sides of the equation could decrease by the same amount

o Both sides of the equation could stay the same