Accounting equation, also called the balance sheet equation, is the base of double entry accounting. The accounting equation expresses that relationship between the owner’s equity, assets and liabilities.

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Accounting Equation
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What is Accounting Equation?
 Accounting equation, also called the balance
sheet equation, is the base of double entry
accounting.
 The accounting equation expresses that
relationship between the owner’s equity, assets
and liabilities.

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Formula
Assets = Liabilities + Owner’s Equity
The accounting formula can also be expressed as:
Liabilities = Assets – Owner’s Equity
or
Owner’s Equity = Assets – Liabilities

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The equation can be applied in a number of
financial situations:
 Financial statements
 Double-entry bookkeeping system
 Income and retained earnings
 Company worth
 Investments

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