We use the accounting equation to identify what a company owns and owes. are resources a company owns or controls, are claims creditors have against a company’s assets, and is the owner’s claim on a company’s assets.

The accounting equation is very useful as its shows us:

The accounting equation is:

Assets = Equity + Liabilities

Assets are the thing owned by the company such as buildings, lands, and stock.

Equity are refers to the portion of assets contributed by the owners while liabilities are those that were acquired by borrowing from creditors.

In conclusion, the accounting equation shows the relationships between assets, liabilities, and equity.

Find out more about the accounting equation at link.

We use the accounting equation to identify what a company owns and owes. Assets are resources a company owns or controls, Liabilities are claims creditors have against a company’s assets, and Equity is the owner’s claim on a company’s assets.

Explanation:

The accounting equation reads as Assets = Liabilities plus Equity.

The accounting equation forms the basis for preparing the balance sheet and the double-entry accounting system. When well prepared, the assets side should balance with liabilities and equity.

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