Basic Accounting Equation

Written By Paula Slaight

Assets = Liabilities + Equity

This is the basic accounting equation, and understanding this is important to the finances of your company and the company's financial statements.

  • Assets:  This is what the company owns (cash, inventory, equipment, etc.)

  • Liabilities:  This is what the company owes someone else (loans, accounts payable, etc.)

  • Equity: This signifies the residual value payable to owners/shareholders after all debts are cleared


Understanding this concept will help you comprehend the Balance Sheet and Profit and Loss (P&L) statements, which are essential for your company’s success.

Paula Slaight
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