Scribd
Upload
98 views

The Accounting Equation: An Introduction

The document introduces the accounting equation, which states that assets must always equal liabilities plus equity. It explains that assets are things owned by a business, liabilities are debts owed, and equity is the owner's claim after liabilities are paid. Examples of each are provided. The accounting equation can also apply to individuals and is expanded to show the components that affect equity.

Uploaded by

ALMA ACUNA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
98 views

The Accounting Equation: An Introduction

The document introduces the accounting equation, which states that assets must always equal liabilities plus equity. It explains that assets are things owned by a business, liabilities are debts owed, and equity is the owner's claim after liabilities are paid. Examples of each are provided. The accounting equation can also apply to individuals and is expanded to show the components that affect equity.

Uploaded by

ALMA ACUNA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 8

The Accounting

Equation
An Introduction

1
All businesses have three parts to their
financial makeup:
• The things or property that the company owns.
We call these things ASSETS.

• The money that the company owes to other


people.
We call these obligations LIABILTIES.

• The claim of the owner of the business to the


Assets after the Liabilities are paid.
We call this claim OWNER’S EQUITY (or just
EQUITY). 2
These three parts ALWAYS have the
same relationship to each other. We
call this relationship the

Accounting Equation

Assets = Liabilities + Equity

3
The Accounting Equation could also apply to a
personal situation. Suppose you buy a car for
$5,000, borrow $4,000 from the bank, and pay the
rest yourself. Here’s the result:
Accounting Equation

Assets = Liabilities + Equity

$5,000 = $4,000 + $1,000


4
ASSETS are the
RESOURCES OWNED BY A BUSINESS .
Here are some types of assets that might
be owned by a business company:

Accounts Cash Notes


Receivabl Receivable
e

Vehicles ASSETS Land

Store Buildings
Supplies
Equipment
5
LIABILITIES are the
CREDITOR’S CLAIMS ON ASSETS.
• Creditors are the people or companies to whom a business
owes something (like money).
• Here are some types of liabilities that a company might owe:

Accounts Notes
Payable Payable

LIABILITIES

Taxes Wages
Payable Payable

6
EQUITY is the OWNER’S CLAIM ON ASSETS
In a business EQUITY is composed of four
parts that either increase or decrease equity:
EQUITY

CAPITAL: WITHDRAWAL REVENUES: EXPENSES:


What the
owner − S:
What the
+ What the
company − What the
company
puts into owner takes receives pays to
the out of the for sales operate the
business business business.

INCREASE DECREASE INCREASE DECREASE


7
Sometimes we expand the Accounting
Equation to show all the Equity
components. This is called the
EXPANDED ACCOUNTING EQUATION.

This equation must


ALWAYS BE IN
BALANCE
8

You might also like