What are the three formulas of accounting equation?
A company’s assets, liabilities, and owner equity are related in accordance with the basic accounting equation. It can be formulated using one of three alternative methods:
Download Our Free Brochure →- Assets = liabilities + owner equity. This equation illustrates how a corporation’s assets, or what it owns, are funded by either liabilities, or what the owner has invested in the company, or both.
- Liabilities = Owner’s Equity – Assets: By rearranging the equation, it is made clear that a company’s liabilities, which represent its debt to creditors, are equal to the difference between its assets and owner equity.
- Owner’s equity = assets – liabilities: The owner’s equity, which is highlighted in this version of the equation, is the remaining stake in the company’s assets after its liabilities have been paid off.
These equations serve as the basis for double-entry accounting and are essential for maintaining accurate and efficient financial records.
