Accounting Equation

The accounting equation, also known as the balance sheet equation, is a fundamental principle in accounting that represents the relationship between a company’s assets, liabilities, and equity. It is expressed as: Assets = Liabilities + Equity. This equation illustrates that the total assets of a company must be equal to the sum of its liabilities and equity, highlighting the fundamental balance between what the company owns (assets) and what it owes (liabilities and equity).