Accounting Equation
The accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital (owner’s equity). The equation reads as follows:
A=L+C
Where,
A = Assets
L = Liabilities
C = Capital
- equation depicts the fundamental relationship among the components of the balance sheet, it is also called the Balance Sheet Equation.
- balance sheet is a statement of assets, liabilities, and capital.
- At any point in time, Resources of the business entity must be equal to the claims of those who have financed these resources.
- The proprietors and outsiders provide the resources of the business.
- The claim of the proprietors is called capital and that of the outsides is known as liabilities.
- Asset side of the balance sheet is the list of assets, which the business entity owns.
- The liabilities side of the balance sheet is the list of owner’s claims and outsider’s claims, i.e., what the business entity owes.
You may also like
What are the functions of Cost Accounting?
June 16, 2023
