In basic terms, the accounting equation demonstrates how business assets are financed. Every business transaction affects a company’s financial standing which is measured primarily based on assets, liabilities and owner’s equity or stockholders’ equity. The basic accounting equation is a simple way to show the relation between these three items.
The fundamental accounting equation definition is: assets equal liabilities plus owner’s equity or stockholders’ equity. Assets include items that are owned by the company, liabilities include amounts owed by the company and equity is the remaining amount after you deduct liabilities from the assets. Consider the following accounting equation resources to help you track your company’s financial position:
1. Get the facts on managerial accounting equations from an accountant or bookkeeper.
2. Find accounting equation templates to help with accounting formulas.
3. Purchase automated solutions for basic and expanded accounting equation reporting.
Obtain professional accounting equation adviceSeek consultation from an accountant or other financial expert for assistance with understanding basic accounting formulas. If you do not have money in your budget to obtain services from an accountant, try various online forums that allow you to ask accounting questions for free.
Order accounting equation templatesAccounting equation templates can help you easily and quickly understand all of the items that should be recorded for the accounting equation. Unlike the basic accounting question, the expanded accounting question allows you to see the affect of net income on your business equity as well as the effects of owner draws and dividends. The expanded accounting equation definition is: assets equal liabilities plus owner's capital plus revenues minus owner's draws.
Buy accounting equation softwareAccounting software provides businesses with step-by-step instruction on how to correctly calculate various accounting formulas including the accounting equation. The software generally includes easy-to-use templates and reports designed to ease the stress of various accounting activities.
- To ensure the accounting equation for your business is balanced, be sure to keep accurate records by recording all business transactions in a general ledger.