The fundamental accounting equation, also called the balance sheet equation, is the foundation for the double-entry bookkeeping system and the cornerstone of the entire accounting science. In the accounting equation, every transaction will have a debit and credit entry, and the total debits (left side) will equal the total credits (right side). In other words, the accounting equation will always be “in balance”. For a company keeping accurate accounts, every business transaction will be represented […]

For example, if a company takes on a bank loan to be paid off in 5-years, this account will include the portion of that loan due in the next year. The accounting equation is a concise expression of the complex, expanded, and multi-item display of a balance sheet. By combining these two equations, businesses can ensure that thir books are balanced and they can accurately report their financial position and performance. If an accounting equation […]

Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity. All revenues the company generates in excess of its expenses will go into the shareholder equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets. The assets section […]

The balance sheet is one of the three main financial statements, along with the income statement and cash flow statement. The balance sheet previews the total assets, liabilities, and shareholders’ equity of a company on a specific date, referred to as the reporting date. A balance sheet is a financial statement that shows the relationship between assets, liabilities, and shareholders’ equity of a company at a specific point in time. The left side of the […]