MEPX
Chapter 2 of 10All chapters
  1. 1What accounting is for
  2. 2The accounting equation
  3. 3The three statements
  4. 4Accruals and matching
  5. 5Profit against cash
  6. 6Bookkeeping in practice
  7. 7Reading the numbers
  8. 8Costs
  9. 9Controls and audit
  10. 10Reading a company report

Chapter 2 of 10

The accounting equation

Assets equal liabilities plus equity.

What it says

Everything a business owns was funded either by borrowing or by its owners. That is why a balance sheet balances: it is the same total viewed two ways.

  • Assets: cash, stock, equipment, money owed to you.
  • Liabilities: loans, supplier bills, tax due. Equity is what remains.

Double entry

Every transaction touches at least two accounts, and debits must equal credits. The requirement is a built-in error check, which is why the method has lasted five centuries.