The Basic Accounting Equation

Introduction to Transaction Analysis : The Basic Accounting Equation

Accounting is built upon the fundamental accounting equation:

Assets = Liabilities + Owner’s Equity

This equation must remain in balance and for that reason our modern accounting system is called a dual-entry system. This means that every transaction that is recorded in accounting records must have at least two entries; if it only has one entry the equation would necessarily be unbalanced.

The equation’s three parts are explained as follows: Continue reading