A widely accepted set of rules, concepts, and

principles referred to as the Generally Accepted

Accounting Principles (GAAP) governs the
application of accounting procedures.
Accounting Equation
Learning Objectives
1. Illustrate the accounting equation;
2. Perform equations involving simple cases with the use of
the accounting equation.
Definitions:
 Assets - items that a company owns that can provide future economic
benefit. Assets are valuable resources controlled by the company.
Examples of assets are cash, accounts receivable, bank deposits (financial
assets), supplies, machinery, land, buildings and equipment’s (non
financial assets). Note that assets are on the left side of the equation
opposite the liabilities and owner’s equity.

 Liabilities - financial obligation of a company that results in the

company’s future sacrifices of economic benefits to other businesses.
- Liabilities refer to things that you owe or have borrowed.
Some of its examples are loans and accounts payable ( raw materials and
leasing)
 Owner's equity - residual interest of the owners which
means any asset left after paying liabilities is the right of the
owner of the business.
- Increases in Owner’s Equity (sales/profit)
- Decreases in Owner’s Equity (expenses and liabilities)