• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Figyan

A resource site for beginners with easy to understand income tax, gst, and finance tutorials for mastering the basics and beyond.

  • Income Tax
    • Income tax slabs FY 2024-25 (AY 2025-26)
    • Income tax slab & rates for FY 2023-24 (AY 2024-25)
    • Income tax return filing deadlines
    • Guide to Personal income tax return
    • Important dates in income tax
    • Ultimate Guide to Salary Taxation in India
    • How TDS on Dividend Income Works in India
  • GST
    • Top 10 GST Mistakes
    • Income Tax vs. Goods and Services Tax (GST)
    • GST e-Way Bill
    • How to identify a fake GST bill
    • Invoices issued under GST law
    • GST Reconciliation-Form GSTR-9C
    • GST Annual Return Form GSTR-9
  • TDS
    • Guide to TDS on Interest Income: Section 194A
    • TDS on Payments to Contractors and Professionals: Section 194M
    • Section 194T: TDS on Payments to Partners of Partnership Firms
    • Section 194J: TDS on fees for professional or technical services
    • TDS on commission and brokerage – Section 194H
    • Section 194D – TDS on Insurance Commission
  • MOA Main object – Samples
    • Consulting company
    • Tour and travel
    • Restaurant
    • Data Processing
    • Real estate developers
    • Information technology
You are here: Home / Finance / Accounting Equation

Accounting Equation

Last modified on December 18, 2023 by Editorial Staff

Accounting equation is the primary principle of accounting and the basic element of the balance sheet. It states that a company’s total assets are equal to the sum of its liabilities and its shareholders’ equity.

The accounting equation ensures that the balance sheet remains balanced. This means any change in the assets of a company should have equal impact/change in related liability and stockholder’s equity.

This simple equation between assets, liabilities, and shareholder’s equity is considered to be the foundation of the double-entry accounting system.

An asset is anything with economic value that a company owns and controls that can be used to benefit the business now or in the future such as fixed assets such as machinery, stocks, bonds and buildings.

Liabilities is anything that a company owes to the outsiders which includes every debt it has incurred, accounts payable, mortgages and accrued expenses.

Shareholders’ equity is the owner’s capital or the value of the company. In other words, it is the amount that would be returned to the shareholders if the company liquidated all of its assets and paid off all of its debts on the balance sheet date.

The Formula for the Accounting Equation

Assets = Liabilities + Shareholder’s Equity

Example of Accounting Equation:

For the year, a leading company XYZ limited incorporated the following points on its balance sheet:

Total assets: Rs. 200 crore

Total liabilities: Rs. 80 crore

Total shareholders’ equity: Rs. 120 crore

If we evaluate the accounting equation (Liabilities + Equity), we arrive at (Rs.80 Crore + Rs. 120 Crore) = Rs. 200 Crore, which equals to the assets reported by the XYZ Limited.

Any changes in the assets of XYZ limited will have equal impact on the liability and stockholder’s equity account.

Categories: Finance

About the Author

Editorial Staff at www.figyan.com is a team of finance professionals. The team has more than a decade experience in taxation, stock market and personal finance.

Primary Sidebar

Popular on Blog

  • Complete Guide to Starting a Partnership Business in India: Key Features, Benefits, and How to Register
  • Difference between intraday and delivery trading
  • 5 Best finance Job search websites you must check out In India
  • Essential Documents You Need to File Your Income Tax Return
  • A Simple Guide to Registering a Private Limited Company in India
  • How goods and services tax or GST is paid in India
  • Things to remember while filing Partnership firms tax return
  • Updated income tax return: eligibility, timeframe, form & importance
  • Income tax rates for partnership firms & LLPs for FY 2022-23 (AY 2023-24)
  • Corporate tax rates in India for FY 2024-25 (AY 2025-26)

Don’t see a topic? Search our entire website:

Footer

Trending Now

  • GST registration in India – All you need to know
  • How a sole proprietorship business is taxed in India
  • How Partnership firms are taxed in India – All you need to know
  • How tax deducted at source works – all you need to know on TDS
  • How to claim tax deduction on fixed deposits – section 80C

Email Newsletter

Sign up to receive email updates daily and to hear what's going on with us!

Privacy Policy

Stay In Touch With Us

  • Facebook
  • Instagram
  • Tumblr
  • Twitter

Disclaimer

The information available through this Site is provided solely for informational purposes on an “as is” basis at user’s sole risk. The information is not meant to be, and should not be construed as advice or used for investment purposes. Figyan.com … Read More about Disclaimer

Copyright © 2022 Figyan.com · All Rights Reserved

  • About Us
  • Disclaimer
  • Privacy Policy
  • Terms of Use and Policies
  • Write For Us
  • Contact Us