The Accounting Equation

Welcome to this comprehensive chapter on The Accounting Equation. This chapter will cover the fundamental concepts that form the foundation of financial accounting principles.

Learning Objectives

• Understand the basic principles of the accounting equation
• Identify the key components: Assets, Liabilities, and Equity
• Apply the equation to real-world business scenarios
• Analyze how transactions affect the accounting equation

Key Concepts

The accounting equation is the foundation of double-entry bookkeeping. It states that:

This fundamental principle ensures that a company's balance sheet always remains balanced. Every business transaction affects at least two accounts, maintaining the equilibrium of the equation.

Assets are resources owned by a business that have economic value and can provide future benefits. They represent what the company owns and controls.

Types of Assets

Let's apply the accounting equation to a real business scenario...