Accounting Equation - SS1 Accounting Lesson Note

The accounting equation is a fundamental principle of accounting that states that a company's assets are equal to the sum of its liabilities and equity. In other words, the accounting equation can be expressed as:

Assets = Liabilities + Equity

Assets are anything of value that a company owns, such as cash, inventory, property, or equipment. Liabilities are the company's obligations, such as loans, accounts payable, and taxes owed. Equity represents the residual interest in the company after liabilities have been subtracted from assets, and can include common stock, retained earnings, and other types of capital.

The accounting equation is important because it provides a framework for understanding a company's financial position and for keeping track of its financial transactions. By maintaining accurate records of its assets, liabilities, and equity, a company can ensure that its financial statements are reliable and can provide useful information to stakeholders.