{"id":138,"date":"2018-04-16T20:39:15","date_gmt":"2018-04-16T20:39:15","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&p=138"},"modified":"2024-04-26T22:16:49","modified_gmt":"2024-04-26T22:16:49","slug":"expanded-accounting-equation","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/expanded-accounting-equation\/","title":{"raw":"Expanded Accounting Equation","rendered":"Expanded Accounting Equation"},"content":{"raw":"
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Learning Outcomes<\/h3>\r\nIllustrate the expanded accounting equation\r\n\r\n<\/div>\r\nAs you have learned, the accounting equation of Assets = Liabilities + Equity is the foundation of the double-entry accounting system. However, the way it is presented does not really reflect the whole picture. In order to understand how this equation really works, we expand the equation to reflect all of its component parts. We refer to this as the \"expanded\" accounting equation:\r\n

Assets = Liabilities + (Common Stock \u2013 Dividends + Revenues \u2013 Expenses)<\/p>\r\nThis expanded equation takes into consideration the components of Equity. Equity increases from revenues and owner investments (stock issuances)\u00a0and decreases from expenses and dividends<\/span>. These equity relationships are conveyed by expanding the accounting equation to include debits and credits in double-entry form.\u00a0<\/span>\r\n\r\nThe increases (credits) to common stock and revenues\u00a0<\/span>increase<\/span><\/em>\u00a0equity; whereas the increases (debits) to dividends and expenses\u00a0<\/span>decrease<\/span><\/em>\u00a0equity.<\/span>\u00a0 Remember, the normal balance of each account (asset, liability, common stock, dividends, revenue, or expense) refers to the side where\u00a0<\/span>increases<\/span><\/em>\u00a0are recorded.\u00a0<\/span>\r\n

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practice questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/8ab217f7-a7f2-4689-9207-d45983c542ec\r\n<\/div>","rendered":"
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Learning Outcomes<\/h3>\n

Illustrate the expanded accounting equation<\/p>\n<\/div>\n

As you have learned, the accounting equation of Assets = Liabilities + Equity is the foundation of the double-entry accounting system. However, the way it is presented does not really reflect the whole picture. In order to understand how this equation really works, we expand the equation to reflect all of its component parts. We refer to this as the “expanded” accounting equation:<\/p>\n

Assets = Liabilities + (Common Stock \u2013 Dividends + Revenues \u2013 Expenses)<\/p>\n

This expanded equation takes into consideration the components of Equity. Equity increases from revenues and owner investments (stock issuances)\u00a0and decreases from expenses and dividends<\/span>. These equity relationships are conveyed by expanding the accounting equation to include debits and credits in double-entry form.\u00a0<\/span><\/p>\n

The increases (credits) to common stock and revenues\u00a0<\/span>increase<\/span><\/em>\u00a0equity; whereas the increases (debits) to dividends and expenses\u00a0<\/span>decrease<\/span><\/em>\u00a0equity.<\/span>\u00a0 Remember, the normal balance of each account (asset, liability, common stock, dividends, revenue, or expense) refers to the side where\u00a0<\/span>increases<\/span><\/em>\u00a0are recorded.\u00a0<\/span><\/p>\n

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practice questions<\/h3>\n

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