Accounting equation

Accounting equation is the core identity of double-entry bookkeeping: assets equal liabilities plus equity. Every transaction, without exception, preserves this balance.

Also known asbalance-sheet equation

ByHoang TruongUpdated June 30, 2026

FrameworkDouble-entry bookkeeping

See it move

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A balance diagram places Assets of €80,000 on the left side and the combined total of Liabilities (€55,000) and Equity (€25,000) on the right, the two sides equalling each other at all times. Every transaction that alters one side must alter the other by the same amount, preserving the equation without exception.

Where it fits

SubjectFinancial AccountingCoreTopicThe Accounting Equation & Its ElementsCore

The formula

LaTeX

A = L + E

Variables

$A$: Total assets (€)
$L$: Total liabilities (€)
$E$: Owners' equity (€)

Every recorded transaction must leave both sides of this identity equal.

LaTeX

E = A - L

Variables

$A$: Total assets (€)
$L$: Total liabilities (€)
$E$: Owners' equity (€)

Equity is the residual interest in assets after all obligations are settled.

Check yourself

PracticeCORE

A company borrows €20,000 from a bank and receives the cash immediately. Which of the following correctly describes the effect on the accounting equation?

Select an answer to check your understanding.