1. What is the Accounting Equation?

The Accounting Equation (Assets = Liabilities + Equity) is the fundamental equation of double-entry bookkeeping and represents the relationship between a company's resources and claims against those resources.

2. How Does the Calculator Work?

The calculator uses the basic accounting equation:

Where:

• \( Assets \) — Resources owned by the company
• \( Liabilities \) — Debts or obligations of the company
• \( Equity \) — Owner's claim on the company's assets

Explanation: The equation must always balance, showing that all assets are either financed by borrowing money (liabilities) or by owners' investments (equity).

3. Importance of the Accounting Equation

Details: This equation forms the foundation for the balance sheet and ensures the accuracy of financial records. It's essential for maintaining proper bookkeeping and understanding a company's financial position.

4. Using the Calculator

Tips: Enter liabilities and equity amounts in dollars (without commas). The calculator will compute the total assets that would balance the equation.

5. Frequently Asked Questions (FAQ)

Q1: Why must the accounting equation always balance?
A: The balance reflects the fundamental principle of double-entry accounting - every transaction affects at least two accounts to maintain the equation's balance.

Q2: What if my equation doesn't balance?
A: An unbalanced equation indicates an accounting error that needs to be investigated, possibly due to incorrect recording of transactions.

Q3: How does revenue and expense affect the equation?
A: Revenue increases equity while expenses decrease equity, indirectly affecting the equation through the equity component.

Q4: Can assets be less than liabilities?
A: Yes, this would result in negative equity, indicating the company owes more than it owns (insolvency).

Q5: Is this equation used in all types of businesses?
A: Yes, the accounting equation applies to all business entities regardless of size or structure, though the equity component may be labeled differently (e.g., owner's equity, stockholders' equity).