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Accounting Equation

What is the Accounting Equation?

The main relationship in introductory accounting is the accounting equation.

Knowledge of this equation is necessary for you to understand how debits and credits work.

The accounting equation

The relationship says the things the business owns either come from the borrowing from outsiders or the funding of the owners.

Assets are what the business owns and the amounts owed to the outsiders are liabilities. Finally the amounts the owners have put into the business is the owners equity.

Taking this further, the following infographic explains the relationship in simple terms.

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