Accounting Equation Formula

Assets = Liabilities + Equity

This implies as,

• Assets = Liabilities + Equity (Shareholder’s Fund)
• Liabilities = Assets – Equity (Shareholder’s Fund)
• Equity (Shareholder’s Fund) = Assets – Liabilities

The above relationship is known as ‘Accounting Equation’ or ‘Balance Sheet Equation”. Let us discuss these three elements one by one:

The accounting equation is the foundation of double-entry accounting, representing the relationship between a company’s assets, liabilities, and equity. Business is run through transactions. Transactions are financial in nature and they affect the financial position of any business. Every transaction increases or decreases Assets, Liabilities, or Equity. The entire accounting structure is based on these three items. A business receives its fund from proprietors & creditors and invests those funds to acquire assets. This shows that the amount of capital and liabilities will be equal to the total amount of assets.