The accounting equation is the foundation of double-entry bookkeeping, stating that Assets = Liabilities + Equity. It ensures that the balance sheet remains balanced, reflecting a company's financial position accurately.
5 Must Know Facts For Your Next Test
The accounting equation must always be in balance for accurate financial reporting.
Assets represent what a company owns, while liabilities and equity represent how those assets are financed.
Equity can include common stock and retained earnings.
Transactions in a business will affect at least two accounts to keep the equation balanced.
Understanding the accounting equation is essential for analyzing and recording transactions.