How does the accounting equation work, and what are some examples of using the accounting equation?

The #accounting equation states that assets always equal liabilities plus equity. Assets are what a company owns, and they are recorded on the left hand side of the balance sheet. What a company owes is recorded on the right hand side of the balance sheet, and can be split between liabilities (what is owed to creditors) and equity (what is owed to shareholders). Assets equal liabilities plus equity. If assets go up, then liabilities and equity also must go up. If assets go down, then liabilities and equity also must go down.

The accounting equation is the foundation for double entry bookkeeping. You could even see the accounting equation as the most important concept in accounting – period! Assets equal liabilities plus equity.

⏱️TIMESTAMPS⏱️
0:00 Introduction to the accounting equation
0:08 Accounting equation definition
0:45 Accounting equation example: startup
1:25 Accounting equation example: purchases
1:53 Accounting equation example: sales
2:48 Accounting equation example: fixed assets

A related video on debits and credits, using DC ADE LER to explain it, can be found at https://www.youtube.com/watch?v=b93KBmcXanI

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!