Accounting Equation

Learning Cell:

The fundamental accounting equation can be stated as:

            ASSETS        =         EQUITIES   

            ASSETS        =          Creditors’ Equities + Owner’s Equities

            ASSETS        =          Liabilities + Capital

The equation may also be expressed as:

            Liabilities       =          Assets            –           Owner’s Equity

            Owner’s equity         =          Assets            –           Liabilities

ASSETS are economic resources of  an enterprise that are recognized as all things at  value owned by the business.

Ø      Examples :

·         Cash and cash equivalents

·         Receivables ( trade & non trade )

·         Property (Land  and building )

·         Equipment

·         Furniture and fixtures

·         Prepaid expenses

·         Investment in stocks/ bonds

LIABILITIES are economic obligations of an enterprise to other individuals or to organization due to varied reasons such acquisition of supplies, equipment , inventories and services  on credit /on account /on notes.

Ø      Examples :

·         Accounts /notes payable

·         Bank loans payable

·         Utilities payable