The Accounting Equation & Double Entry

Assets, liabilities and capital, the accounting equation, and double-entry rules.

The accounting equation

$\text{Assets} = \text{Capital} + \text{Liabilities}$

Assets — what the business owns (e.g. premises, inventory, cash, receivables).

Liabilities — what it owes (e.g. loans, payables).

Capital — the owner's investment.

Every transaction keeps the equation balanced.

The accounting equation: assets are funded by capital plus liabilities.

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