Accounting Equation
The fundamental rule that total assets equal total liabilities plus total equity on every balance sheet.
What is Accounting Equation?
The accounting equation — Assets = Liabilities + Equity — is the foundational principle of double-entry bookkeeping and the structural backbone of every balance sheet. Every financial transaction must affect at least two accounts in a way that keeps both sides of the equation equal. For example, borrowing cash increases assets (cash) and liabilities (loan payable) by the same amount, leaving equity unchanged. The equation also expresses the residual claim of shareholders: equity is what remains of assets after all liabilities are satisfied.
Example
Apple Inc. reported total assets of $352.6 billion, total liabilities of $290.4 billion, and total shareholders' equity of $62.1 billion in its FY2024 10-K filing, demonstrating the accounting equation in practice: $352.6B = $290.4B + $62.1B.
Source: Apple Inc. 10-K FY2024