Question

What is an accounting equation?

Answer 1

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$\mathfrak{\blue{Q.}}$What is an accounting equation?

$\mathfrak{\blue{Ans.}}$ An accounting equation is a mathematical equation which shows that assets of a business are always equal to total of its capital and liabilities.

Thus, Assets = Capital +Liabilities

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Answer 2

• The accounting equation is the formula used to capture the effect of the relationship of financial activities within a business.

• The equation is typically written as:

Assets = Liabilities + Owner Equity

• The accounting equation is a simple way to view the relationship of financial activities across a business. The balance sheet essentially takes care of filling in each of the values in the equation, so the equation is not meant for actual use but is instead a simplified representation of how the financial side of a business functions.