Accounting equation

The entire assets of a company are up to the sum of its liabilities and shareholders’ equity, consistent with the accounting equation.

The basic idea behind the double-entry accounting is that assets, liabilities, and equity have a transparent relationship with each other. The record is kept in balance due to the accounting equation. In other words, every accounting entry features a corresponding ledger entry (or coverage) on the opposite side of the ledger.

The record equation or fundamental accounting equation are other names for the accounting equation.

The double-entry accounting is believed to be built upon the accounting equation.

According to the accounting formula, a company’s total assets are adequate to the sum of its liabilities and shareholders’ equity on its record.

The company’s significant resources are represented by its assets. Their responsibilities are represented by the liabilities.

Liabilities and shareholders’ equity both show how a company finances its assets.

Debt funding is displayed as a liability, whereas equity financing is displayed as shareholders’ equity.