What is the Accounting Equation?

ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY


This is the accounting equation. All of accounting comes to this. Stockholders’ Equity represents what the owners own from the company’s assets. Liabilities represents what the creditors own in the company’s assets.

What are Assets? Assets are something of value that the company has. What are Liabilities? Liabilities are what the company owes to creditors. What is Stockholders' Equity? Stockholders’ Equity is what the owners own.

Examples of Asset Accounts: Cash, Supplies, Equipment, Building, Land, Accounts Receivable, etc.

Examples of Liabilities Accounts: Accounts Payable, Notes Payable, Utilities Payable, Salaries Payable.

Examples of Stockholders' Equity Accounts: Common Stock, Dividends, Revenues (Service Revenue, Sales Revenues, Interest Revenues), and Expenses (Rent Expense, Insurance Expense, Utilities Expense, Salaries Expense).

Accounting Equation - Video Explanation