Accounting equation with examples

In a double-entry system, for every debit entry there must be a credit entry and vice versa. This leads us to the basic accounting equation:

Assets = Liabilities + Owners' Equity

The above equation shows how assets are financed: either by borrowing money from someone (liabilities) or by paying your own money (owner’s equity).

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Debits and credits

Sponsor article. by Proccounting Inc.

Debits and credits are the backbone of double-entry accounting system. In double-entry accounting, a company’s assets are equal to its liabilities plus owner’s equity.

This is known as the accounting equation (Assets = Liabilities + Equity). Each transaction has to be recorded in at least two accounts and the sum of all debits must equal to the sum of all credits. This is an elegant mechanism to ensure the accounting equation is not violated.

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