{"id":2613,"date":"2020-08-25T22:16:03","date_gmt":"2020-08-25T22:16:03","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&p=2613"},"modified":"2020-11-22T22:11:53","modified_gmt":"2020-11-22T22:11:53","slug":"introduction-to-the-basic-accounting-equation","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/introduction-to-the-basic-accounting-equation\/","title":{"raw":"Introduction to the Basic Accounting Equation","rendered":"Introduction to the Basic Accounting Equation"},"content":{"raw":"

What you'll learn to do: state the accounting equation<\/h2>\r\nThe cornerstone of accounting, as it\u2019s been practiced since Pacioli documented it back in 1494, is the accounting equation. It\u2019s a relatively simple mathematical identity that looks like this:\r\n

[latex]\\text{A}=\\text{L}+\\text{OE}[\/latex]<\/p>\r\nThe A stands for assets, the L stands for liabilities, and the OE stands for owner\u2019s equity.\r\n\r\nWhile the accounting equation only includes three categories, there are actually five that financial accountants track over time:\r\n

    \r\n \t
  1. Assets (A):<\/strong> Anything of value that a business owns.<\/li>\r\n \t
  2. Liabilities (L):<\/strong> Debts that a business owes; claims on assets by outsiders.<\/li>\r\n \t
  3. Owner\u2019s Equity (OE):<\/strong> Worth of the owners of a business; claims on assets by the owners.<\/li>\r\n \t
  4. Revenues (Rev):<\/strong> Income that results when a business operates and generates sales.<\/li>\r\n \t
  5. Expenses (Exp):<\/strong> Costs associated with earning revenue.<\/li>\r\n<\/ol>\r\nIn this section, we\u2019ll be exploring each of those items.\r\n\r\nLet\u2019s move ahead so that you can gain a more detailed understanding of the basic accounting equation and its components.","rendered":"

    What you’ll learn to do: state the accounting equation<\/h2>\n

    The cornerstone of accounting, as it\u2019s been practiced since Pacioli documented it back in 1494, is the accounting equation. It\u2019s a relatively simple mathematical identity that looks like this:<\/p>\n

    [latex]\\text{A}=\\text{L}+\\text{OE}[\/latex]<\/p>\n

    The A stands for assets, the L stands for liabilities, and the OE stands for owner\u2019s equity.<\/p>\n

    While the accounting equation only includes three categories, there are actually five that financial accountants track over time:<\/p>\n

      \n
    1. Assets (A):<\/strong> Anything of value that a business owns.<\/li>\n
    2. Liabilities (L):<\/strong> Debts that a business owes; claims on assets by outsiders.<\/li>\n
    3. Owner\u2019s Equity (OE):<\/strong> Worth of the owners of a business; claims on assets by the owners.<\/li>\n
    4. Revenues (Rev):<\/strong> Income that results when a business operates and generates sales.<\/li>\n
    5. Expenses (Exp):<\/strong> Costs associated with earning revenue.<\/li>\n<\/ol>\n

      In this section, we\u2019ll be exploring each of those items.<\/p>\n

      Let\u2019s move ahead so that you can gain a more detailed understanding of the basic accounting equation and its components.<\/p>\n\n\t\t\t

      \n\t\t\t

      Candela Citations<\/h3>\n\t\t\t\t\t
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      CC licensed content, Original<\/div>