Accounting equation

Welcome, and thank you for joining this session on the accounting equation, the fundamental principle underlying all financial accounting. The accounting equation is the backbone of every financial statement worldwide. In its basic form, it's assets equal liabilities plus equity. Assets are resources controlled by a business, such as cash, inventory and equipment. Liabilities are debts to outside parties, while equity represents the owner's remaining claim after liabilities. This equation is always balanced, offering a snapshot of a business's financial position. Let's explore the elements further and see how the equation evolves with business operations. When someone starts a business by investing cash, the business immediately has an asset, cash and a matching owners claim called equity. If the business borrows, both assets and liabilities increase. As the business operates, it earns revenue through sales and incurs expenses. Revenues increase equity while expenses decrease it. Expanded equation can be expressed as assets equals liabilities plus equity. Where equity is further detailed, as equity equals owner's capital, plus revenues minus expenses, minus drawings. Every transaction, selling goods, buying stock, or paying wages must keep this equation balanced. Every transaction impacts at least two accounts, reflecting the dual aspect of financial events. This is called double entry accounting,