Accounting Equation

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The accounting equation is a key formula that any successful business owner or manager must understand. This equation gives you a snapshot of not only how much money your organization has invested in assets but also how many claims have been put onto those assets.The basic accounting equation, forming the foundation of the double entry bookkeeping system, is assets = liabilities + owners' equity. Assets include cash, accounts receivable, inventory, raw materials, tangible and intangible investments, land, buildings, equipment, vehicles, patents, and copyrights. Liabilities, such as accounts payable, payroll, and loans, are bills owed to people outside the company. Finally, owners' equity is the amount of capital owed to the business partners or stockholders. This account is increased through revenue and decreased through expenses. The balance sheet is the accounting document used to represent a company's assets, liabilities, and owners' equity at a specific point in time. When you maintain accurate records, the total assets category always equals the sum of total liabilities and owners' equity. For example, taking out a $10,000 loan increases assets by $10,000 and increases liabilities by $10,000. Whether you track your business's accounting by yourself or hire the professional services of a bookkeeper or accountant, you can benefit by learning more about the accounting equation. Business.com presents essential business knowledge about this concept and more.

Accounting Equation

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 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.
Try: 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.
Try: 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.
Try: 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.

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.