What Is the Accounting Equation?


Quick Answer

The accounting equation is regarded as the process used for capturing the outcomes of economic events. Since the financial position of a sole proprietorship can only be measured by its assets, liabilities and equity, the accounting equation will be: Assets = Liabilities + Equity of the owner.

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Full Answer

The corporation accounting equation, on the other hand, will be:

Assets = Liabilities + Equity of the stockholders.

The resources of a company, or the things it owns, are its assets while its obligations are referred to as liabilities. Examples of assets are accounts receivables, land, cash, inventory, buildings, prepaid insurance, goodwill and equipment. Examples of liabilities include loans or notes payable, salaries, interest payable, income taxes payable and accounts payable.

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