Accounting Equation

The equation that is the
foundation of double entry
accounting. The accounting
equation displays that all assets
are either financed by borrowing
money or paying with the money
of the company’s shareholders.
Thus, the accounting equation is:
Assets = Liabilities + Shareholder
Equity. The balance sheet is a
complex display of this equation,
showing that the total assets of a
company are equal to the total
of liabilities and shareholder
equity. Any purchase or sale by
an accounting equity has an
equal effect on both sides of the
equation, or offsetting effects on
the same side of the equation.
The accounting equation is also
written as Liabilities = Assets –
Shareholder Equity and
Shareholder Equity = Assets –
Liabilities