The fundamental basis for all accounting information comes from the basic accounting equation. This equation is assets equal liabilities plus owner's equity. To maintain a viable accounting this equation must remain in balance. That's why they call the current accounting system a dual-entry system. When you enter information on the assets side an equal entry occurs in the liabilities or owner's equity column. Assets are anything that a business owns and liabilities are what the company owes to entities outside the business. Owner's equity is anything the business owns such as investment and business profit.

If you thoroughly understand the basic and expanded accounting equation, keeping the books for a business becomes much easier to do. You can attain an accounting equation education and training through various sources. The primary source of this information is Internet tutorials, which provide an excellent base upon which to build your accounting equation knowledge. There are also training course and accounting institutes available. However, before you begin the process there are few items to consider, such as:

1. Review the online fundamental accounting equation tutorials.

2. Examine the expanded accounting equation courses.

3. Contact the various industry institutes for more educational resources.

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Evaluate the accounting formulas and equation tutorials available online

Accounting is a profession built on equations and the foundation of all others is the basic accounting equation. Without this equation balancing out, a company's balance sheet will always be inaccurate. Online tutorials are an excellent resource for establishing this knowledge foundation.

I recommend: Study the online tutorial available at Money Instructor for accounting transaction training. Use the resources at Wisconsin Online Resource Center to understand the basic accounting equation. Review the accounting equation resources from Arkansas State University.

Enroll in training courses for accounting equation variations

After you learn the essential basic accounting equation information, then you can move onto the variations that make up the rest of the accounting system. Instructor-led and online courses can help you transition from the basic to the variance method of accounting.

I recommend: Assess the instructor-led training courses at Expert Rating. Register for online accounting equation courses from the Accounting Coach. Purchase the accounting tutorial software at Dr T Accounting.

Use industry institutes to apply your basic accounting equation education

Knowing the accounting equation definition will only get you so far in the profession. Even after taking in-depth tutorials, you need to know how these managerial accounting formulas apply in real world situations. For this application, industry institutes are a great resource. You can network and attend seminars to know how accounting equations relate to companies in the real world.

I recommend: Contact the Institute of Management Accountants about admission requirements and training opportunities. Speak to representatives from The American Institute of Certified Public Accountants about membership and educational resources.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Make sure to verify the credentials of any accounting equation educational course prior to enrollment.

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.

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Obtain professional accounting equation advice

Seek 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.

I recommend: Just Answer offers an online forum in which you can post questions on accounting formulas and receive responses from accountants, financial planners and other finance experts. Fiducial has accounting experts have in-depth knowledge about both the basic and expanded accounting equation and provides professional advice to businesses on a range of accounting activities.

Order accounting equation templates

Accounting 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.

I recommend: You can sign up online at MoneyInstructor.com to receive access to an accounting equation transaction worksheet. Microsoft offers free, downloadable templates designed to assist businesses with basic accounting formulas.

Buy accounting equation software

Accounting 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.

I recommend: QuickBooks is specially designed to help small business owners manage a variety of accounting formulas including the accounting equation. Fund E-Z Development fund accounting software enables you to easily manage various accounting formulas.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  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.

The double-entry bookkeeping system has at its core the accounting equation. Simply put, the accounting equation states that assets equal liabilities plus owner’s equity. For business, the owner’s equity part is instead of shareholder’s equity. Every single transaction your business makes will influence one part of the accounting equation. However, to properly utilize this equation, it’s important to understand the key terms involved and how they relate to the equation.

The following are definitions of these key terms and how they relate to the accounting equation.

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Assets

An asset is anything you or your business owns that possesses economic value. Examples of assets are cash, real estate, accounts receivable, inventory, office equipment, automobiles and other property. In the accounting equation, assets must equal liabilities plus shareholder equity for the books to balance. If your assets aren't equal in the equation, then you may need to recheck your accounting ledger.

I recommend: Review the definitions of assets available at Investor Words and the Business Dictionary.

Liabilities

Liabilities are what a business owes to another entity in the form of a financial obligation. Some examples of liabilities include accounts payable, wages, taxes, purchase of equipment, leases, pensions and other debt. The liabilities plus shareholder equity should be the same as the assets side of the accounting equation.

I recommend: Evaluate the definition of the liability part of the accounting equation at Investopedia.

Shareholders' equity

Shareholders' equity is total assets minus total liabilities. In the accounting equation, it is on the liabilities side of the formula. In other words, shareholders' equity is what remains when a company pays all its debt. Cash and retained earnings are the two sources of shareholders' equity. You'll also see shareholders' equity referred to as owners' equity, net assets, shareholders' funds and net worth.

I recommend: Examine the tutorial available at Cliff Notes to understand how shareholders' equity fits into the accounting equation.

Debits and credits

The term debit derives from the Latin word debitum, which essentially means 'to owe.' When referring to the accounting equation, the debit adds to the liability part of the formula. However, when you enter a debit into the formula, it requires a credit in the asset part of the accounting equation. Debits and credits are the backbone of the double-entry accounting system, which most companies use today.

I recommend: Study the debits and credits tutorial from the Accounting Nation.

Inventory

Inventory is the cost to purchase or make merchandise for sale to the customer. In the accounting equation, you would consider any inventory an asset.

I recommend: Review the accounting equation examples at the Bookkeeping-Financial-Accounting-Resources.

Balance sheet

The balance sheet is a statement of financial position for a company and is a direct reflection of the accounting equation.

I recommend: Review the tutorial at the Accounting Coach for a definition of the balance sheet as it relates to the accounting equation.