Problemas
7. Explain the accounting equation. Accounting Equation: __
Roztwór
Eduardo
professionell · Tutor durante 6 años
4
(202 Votos)
Respuesta
'Assets = Liabilities + Equity'
Explicación
## The accounting equation is a fundamental principle in the field of accounting. It provides a snapshot of a company's financial position at any given time. The equation is:### **Assets = Liabilities + Equity**## This equation is based on the double-entry book, which is a recording financial transactions. In this system, every transaction affects at least two accounts. The accounting equation ensures that the company's books are always balanced, meaning that the total assets of the company are always equal to the sum of its liabilities and equity.## The equation can be broken down as follows:- **Assets**: These are the resources owned by the company that have economic value. They can be tangible, like buildings and equipment, or intangible, like patents and copyrights.- **Liabilities**: These are the obligations or debts that the company owes to others. They can be short-term, like accounts payable, or long-term, like bonds payable.- **Equity**: This represents the ownership interest of the shareholders in the company. It is the residual interest in the assets of the company after deducting liabilities. Equity can be further broken down into common stock, retained earnings, and additional paid-in capital.## The accounting equation is the foundation of the double-entry accounting system. It ensures that the company's books are always balanced, meaning that the total assets of the company are always equal to the sum of its liabilities and equity. This equation is also the basis for the preparation of financial statements, such as the balance sheet and the income statement.