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Basic Accounting Equation Explained

Basic Accounting Equation Explained
cal LiveWebTutors cal 02 May, 2020

The life of an accountant involves a complicated scenario where he/she is usually seen struggling with a number of complexities pertaining to accounting principles. In order to make thing easier for you, let us comprehend and simplify the accounting equation here.

An accounting equation refers to a formula that is beneficial for recording the primary relationship between several financial activities in a business. A simplified breakdown of the numbers, the valued gets entered in the balance sheet of a company or business. This equation further defines the perfect correlation between the assets, the liabilities and the equity of the owner in a organization/business.

The accounting equation acts as the primary foundation that implies that each assets of the company needs to be equal to the liabilities. To explain it in better words, the entries that have been made on the debit side of the balance sheet needs to have a corresponding entry on the side of credit. This is why the basic equation of accounting is referred to as being the equation of balance sheet.

An insight to accounting equation:

By accounting equation, we refer to a basic accounting principle which is better understood as the core element of the balance sheet.

With the help of the equation, you can acquire a strong understanding of double-entry accounting that point out the layout of the balance sheet.

On the other hand, double-entry accounting refers to a system where all transaction affects each and every side of the equation. There needs to be an equal change to the account of a shareholder’s equity and liability with each time there is a change in the asset account.

Basic Equation: Assets= Liabilities + Equity

An insight to understanding the fundamental components of the equation:

Now that the equation have been framed in front of you, it is essential to understand the factors that make the equation up.


Assets can be defined as anything which can be easily converted into cash. Anyone can own an asset, be it an individual or government. It can be referred to an asset when it can generate substantial amount of revenue and bring profit to the table for the owner.

Apart from an individual, a company consists of two kinds of assets, current and non-current

Current assets can be defined as assets that which one can easily convert into cash in a short period of time, even less than a fiscal period. The assets are beneficial for facilitating everyday expenses such as accounts receivable, cash, inventories and so on.

On the other hand, there are non-current assets which are referred to as fixed assets as the company makes use of them for producing goods and services. These assets comprise property, machinery, land, plant and machinery and so on.


Liability can be explained as an obligation that is owned by a business to another entity. It can be cited as the total value that is expected out of a company to pay. It can be either paid in short term or long term. Similar to the previous component, liability too can be classified as a current and noncurrent based on the context. This comprises of borrowings of a company, either from bank or from an individual. It can also be cited to a previous traction which makes way for an unsettled obligation, bonds payable, accounts payable and others.

Understanding shareholder’s equity:

This is referred to the entire value of money that a company has raised through issuing shares. The equity is often referred to the retained earnings of a company. As shareholders invest certain amount of their money in an organization, hence they also expect to have some dividends in return. This is why it lies on the side of the liabilities in the book.

The retained earnings can be further segregated into two distinct parts, expenses and revenue. This helps in understanding and comprehending the relationship between income statements along with balance sheet. While the revenue is cited as what the business earns by selling products and services to customers, expenses, on the other hand, refers to the costs incurred by a business to manufacture what it wants to offer. When the revenue gets higher that the costs incurred for manufacturing a product, it is definitely a profitable venture.

It is up to the owner to withdraw an equity or salary from the business. However, when the company is incorporated, the salary then can be a dividend paid by the organization. Situations are however not the same with all companies, for a small and sole proprietorship and limited liability company, owners can draw the salaries from the business.

Knowing about balance sheet and income statement

The balance sheet can be explained as the statement of the position and reports of the assets, the equity of the owners, the liabilities, at a particular point of time. Similar to the accounting equation, it reflects the total assets of a company to be equal to the amount of liabilities in addition to owners’ equity.

The income statement reports the revenue of the company along with the expenses and the resulting income. The income statement covers a particular time period; however the balance sheet is concentrated upon one point in time. It is beneficial for explaining the change in the equity of the owner or the stockholder.

An introduction to online assignment help

Are you struggling with the basics of understanding the fundamentals that the accounting subject brings in? Stop having a hard time completing the assignments; instead seek assistance of accounting assignment help professionals to make things easier for you.

How will accounting assignment help professionals help you?

There are a million ways in which the professionals of accounting help a student gain understanding of accounting. However, apart from offering a deep insight into the subject, the professionals help students to craft an accounting assignment that stands apart from the rest.

This is made possible with the help of the assignment experts with an expert knowledge on the fundamentals of accounting. Using the best of their knowledge, the professionals enable students to avail a world class paper.

Let us discuss a few of their services in details for students to know better.

Budget friendly prices

A lot of students step back from availing world class assignment papers due to the fear of expensive prices. However, this is a myth with expert professional services such as The experts ensure that the guidance offered is of a reasonable budget. Professionals are aware of the budget constraint faced by a student while studying overseas. This is when the pricing solutions have been designed for the best of the students.

Concept clarity

It is common for students to fail to understand a number of concepts related to accounting. The subject involves a number of details and intricacies which are not easy to understand for one and all. This is when students can get in touch with the professionals offering online assignment help. The professional writers along with the live tutors can offer a deep insight into explaining the essential concepts for students to understand them well.

Timely assignments

Timely submission is one of the essential factors that students deal with. In a university, students can have their assignments or homeworks rejected if not submitted within the time frame. If you are unable to submit the projects on time, worry no more as the assignment help experts are just a step away. By offering timely assignments, students can avail a high grade at the university without much of a hurdle.

Plagiarism free accounting assignment

As the subject deals with a lot of technicalities, hence plagiarism can be a common concern. In order to get rid of the issue, it is important to ensure that students take help from several accounting resources. As it can get difficult for students to avail a plagiarism free assignment, hence it is best when left on the hands of the experts.

University friendly assignments

As the students have a difficulty in understanding the guidelines as specified by the university, hence they often resort to the professionals adhering by university friendly assignments. With an optimum knwoldge of the guidelines and norms as stated by the university, the professionals can offer a project that is sure to stand at par with the necessary requirements of the university.

Seek online accounting assignment help from the experts in business:

If you have been running errands looking for the perfect place to seek online assistance, there is good news for you. We welcome to you, where we are a team of professionals with an expertise knowledge on accounting and its principles.

Call us anytime or send an email to seek knowledge on accounting and accounting principles. Alternatively, you can also chat with our customer support executives to attain a speedy delivery. Offering an easy and hassle free online assistance, the experts are available for your assistance.

It is time to strengthen the knowledge of your accounting basics before entering into the complexities of the subject. To get a speedy and reliable help, call us today before we are occupied completely.



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