5 questions foundAssets = Liabilities + Equity. It shows that everything a business owns is financed either by what it owes (liabilities) or by the owners (equity), so the two sides always balance.Assets 100,000 = Liabilities 40,000 + Equity 60,000Real-world example A startup buys $60k of assets with $20k owner cash and a $40k loan — the equation holds.Every transaction has a dual effect: at least two accounts change so the equation stays equal.Buy equipment $500 cash:
+500 Equipment (asset), -500 Cash (asset) -> net assets unchangedReal-world example Paying a supplier reduces cash and reduces a payable equally.What is the expanded accounting equation?
Intermediate Assets = Liabilities + Capital + Income - Expenses - Drawings. It breaks equity into its drivers to show how profit and owner activity affect it.Equity = Opening capital + Profit (Income - Expenses) - DrawingsReal-world example Explaining to an owner why equity rose: profit added, drawings subtracted.Assets increase (cash +10,000) and liabilities increase (loan +10,000); equity is unchanged.Assets +10,000 (Cash) = Liabilities +10,000 (Loan) + Equity 0Real-world example Raising debt funds growth without diluting the owner's equity.The balance sheet is the accounting equation presented at a point in time: total assets equal total liabilities plus equity.Balance Sheet: Assets 250,000 | Liabilities 90,000 + Equity 160,000Real-world example A lender reads the balance sheet to see how much of the assets are debt-funded.