The Accounting Equation forms the foundation of the balance sheet and illustrates how assets, liabilities, and equity are interrelated, ensuring that the balance sheet remains balanced.
Also known as the accounting equation, the balance sheet equation is the foundational formula that forms the basis of double-entry bookkeeping: Assets = Liabilities + Equity. This equation ensures that a company's financial statements are balanced, indicating that all resources (assets) owned by the company are financed either by borrowing (liabilities) or by investing funds (owner’s equity).
Double-entry accounting, also known as double-entry bookkeeping, is a system of financial records used in business whereby equal debits and credits are recorded for each transaction, ensuring the accounting equation (Assets = Liabilities + Owner's Equity) remains balanced.
The Entity View is a fundamental concept in accounting that emphasizes the importance of the business or organization as a separate entity from its owners. This view is based on the accounting equation where the sum of the assets is equal to the claims on these assets by owners and others.
