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Trading and Investment Terminology

Accounting Equation

The Accounting Equation represents the relationship between the Assets, Liabilities, and Owner's equity of a person or a business.

It is the foundation for the double-entry bookkeeping system. The Accounting equation ensures that the balance sheet remains “balanced,” 

  1. Each entry made on the debit side should have a corresponding entry on the credit side.

Some examples of items that fall under each section

Assets: Cash, Accounts Receivable, Inventory, Equipment

Liabilities: Accounts Payable, Short-term borrowings, Long-term Debt

Shareholder’s Equity: Share Capital, Retained Earnings

Accounting Equation Formula

Assets=Liabilities+Owner's Equity

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