The Basic Accounting Equation is the key, key, key, key equation of the subject. Did I mention it’s key? If you understand this simple, yet often misunderstood equation, you will be leap years ahead of most accounting students! I really mean it… You see, everything in accounting – and I mean e-v-e-r-y-t-h-i-n-g – revolves around this equation! The rest of the subject is a breeze if you get this concept.
And in order to fully understand this key, key equation, we will be taking a detailed look at each of its three components:
1. Assets
2. Liabilities
3. The Owners Equity.
By learning what each of these terms mean, and how they add up to the equation, you’ll be in a perfect position to go through more complicated parts of the subject, like debits and credits (scary terms, but please don’t run away yet!
We’ll get to this and sort it all out pretty soon!.