What is accounting equation in easy words?

The accounting equation, sometimes known as the basic equation of accounting, is a straightforward but essential idea in finance. According to this rule, a company’s assets are determined by adding together all of its liabilities and owner equity. In plainer terms, it demonstrates how a company’s assets (resources) are funded by either internal investment (owner’s equity) or funding from outside sources (liabilities). By guaranteeing that every financial transaction has an impact on the equation and maintains its balance, this equation serves as the cornerstone for double-entry bookkeeping. It essentially reflects the fundamental notion that everything a firm has is either owned by or owes money to its owners, giving a snapshot of its current financial situation.

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