What is the balance sheet equation?

The balance sheet equation is a fundamental concept in accounting that represents the relationship between a company's assets, liabilities, and shareholders' equity. It states that the total assets of a company are equal to the sum of its liabilities and shareholders' equity. In other words, the equation can be expressed as: Assets = Liabilities + Shareholders' Equity. This equation underpins the double-entry accounting system, where every transaction affects at least two accounts and maintains the balance between the two sides of the equation. The balance sheet equation provides a snapshot of a company's financial position at a specific point in time and is a crucial tool for evaluating a company's financial health and performance.

This mind map was published on 21 September 2023 and has been viewed 123 times.