Learn what is the accounting equation illustrated with examples. In this presentation, you will understand what the accounting equation is and the intuition behind.

1. The Accounting Equation

2. Assets = Shareholders' Equity + Liabilities
The value of a company's asset(resources owned)
depends on how much owners (shareholders’
equity) and lenders (liabilities) have put into
the business
The Accounting Equation

3. Diagram of the Accounting Equation
The relationship between assets, shareholders' equity and
liabilities

4. Example 1
• Your business borrowed $3,000 from the bank
• Now the business has $3,000 extra cash. Cash is
an asset. Hence, the business has an extra
$3,000 worth of assets. Where did the asset
come from this time? The business borrowed
that from a lender. The liability of the business
increases by $3,000.
Transaction Assets = Shareholders’ Equity + Liabilities
(1) +3,000 (Cash) +3,000 (Bank
Loan)

5. Example 2
• Your business buys a machine for $300.
• The business gave up $300 cash, which is an
asset. It in return gains a machine, which is also
an asset. So the business’s asset decreases by
$300 and then increases by $300.
Transaction Assets = Shareholders’ Equity + Liabilities
(1) +3,000 (Cash) +3,000 (Bank
Loan)
(2) - 300 (Cash)
+ 300
(Machinery)

6. For more free accounting study notes, visit
http://notestoaccounts.com
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