The Accounting Equation
The foundation of double-entry bookkeeping.
\text{Assets} = \text{Liabilities} + \text{Equity}
1What it means
Everything a business owns (assets) is funded either by what it owes (liabilities) or by the owners’ stake (equity). Both sides must always balance.
2Variables
| Symbol | Meaning |
|---|---|
| \text{Assets} | What the business owns |
| \text{Liabilities} | What the business owes |
| \text{Equity} | Owners’ residual claim |
3Worked examples
Example 1 Worked solution
Q. A business has ₹5,00,000 in assets and ₹2,00,000 in liabilities. Find equity.
- Assets = Liabilities + Equity.
- Equity = Assets − Liabilities.
- = 5,00,000 − 2,00,000.
✓ Equity = ₹3,00,000
4Where it's used
- ✦Building and checking a balance sheet.
- ✦Verifying that the books balance.
5Tips & common mistakes
- !Every transaction keeps both sides equal.
- !Equity is also called Capital or Owner’s Equity.