Accounting Equation

Charles Hoffman, CPA

23-12-2025

The accounting equation (a.k.a. the fundamental accounting equation, the balance sheet equation) is the cornerstone of financial accounting. There are three components to the accounting equation: assets, liabilities, and equity. These components also tend to be used to identify the major account groups within a chart of accounts. The accounting equation is a de facto industry standard.

Export Date: December 23, 2025

Terms: 8

Relations: 12

Index

Accounting Equation	Assets	Assets = Liabilities + Equity
Balance Sheet	Capital	Capital → Equity
Capital → Liabilities	Concept	Equity → Capital
Equity	Liabilities	Line Item → Concept
Primary Item → Concept	Statement of Financial Condition → Balance Sheet	Statement of Financial Position → Balance Sheet

Accounting Equation ↑ Go to Index ↑ Go to Graph

The fundamental accounting equation, also called the balance sheet equation, is the foundation for the double-entry bookkeeping system and the cornerstone of accounting science. Like any equation, each side will always be equal. In the accounting equation, every transaction will have a debit and credit entry, and the total debits (left side) will equal the total credits (right side). In other words, the accounting equation will always be "in balance".

Relations

Source	Relation	Target
Accounting Equation	has	Assets
Accounting Equation	has	Equity
Accounting Equation	has	Liabilities
Assets = Liabilities + Equity	has rule	Accounting Equation
Assets	is part of	Accounting Equation
Balance Sheet	is part of	Accounting Equation
Equity	is part of	Accounting Equation
Liabilities	is part of	Accounting Equation

Assets ↑ Go to Index ↑ Go to Graph

assets as defined by SFAC6 which is probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Relations

Source	Relation	Target
Assets	is a type of	Concept
Assets	is part of	Accounting Equation
Accounting Equation	has	Assets

Assets = Liabilities + Equity ↑ Go to Index ↑ Go to Graph

Assets = Liabilities + Equity

Balance Sheet ↑ Go to Index ↑ Go to Graph

The balance sheet shows the financial condition of a reporting economic entity.

Synonyms: Statement of Financial Position, Statement of Financial Condition

Capital ↑ Go to Index ↑ Go to Graph

Capital is a synonym for equity.

Synonyms: Equity

Relations

Source	Relation	Target
Capital	is a type of	Equity

Concept ↑ Go to Index ↑ Go to Graph

Concepts are defined in two equivalent ways. In a syntactic sense, a concept is an XML Schema element definition, defining the element to be in the item element substitution group or in the tuple element substitution group. At a semantic level, a concept is a definition of a kind of fact that can be reported about the activities or nature of a business activity.

Synonyms: Primary Item, Line Item

Relations

Source	Relation	Target
Assets	is a type of	Concept
Equity	is a type of	Concept
Liabilities	is a type of	Concept

Equity ↑ Go to Index ↑ Go to Graph

equity as defined by SFAC6 which is residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest

Synonyms: Capital

Relations

Source	Relation	Target
Equity	is a type of	Concept
Equity	is part of	Accounting Equation
Accounting Equation	has	Equity
Capital	is a type of	Equity

Liabilities ↑ Go to Index ↑ Go to Graph

liabilities as defined by SFAC 6 which is probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities

Synonyms: Capital

Relations

Source	Relation	Target
Liabilities	is a type of	Concept
Liabilities	is part of	Accounting Equation
Accounting Equation	has	Liabilities