The Accounting Equation

The Accounting Equation

The accounting equation is the logic behind double entry accounting or accrual accounting.

To understand this logic, you need to know there are five types of transactions in the accounting process.

These types of ledger accounts are Assets, Liabilities, Owners Equity, Revenues and Expenses. Because this is so important, you can learn more about the types of ledger accounts here.

The accounting equation uses three of these types of accounts.

Now, accounting logic says that the accounting equation relationship is as follows:

The Balance Sheet or Statement of Financial Position of the business shows the ‘financial position‘.

The items on the Balance Sheet are the Assets, Liabilities and Owners Equity. Importantly, these items ‘balance’ because of the accounting equation.

Now to learn more and have a teacher explain, take this Introductory Accounting Tutorial Course  Accounting Equation and Debits and Credits

Return to