Which equation is equivalent to the accounting equation?

The accounting equation, also known as the balance sheet equation, represents the fundamental principle of double-entry bookkeeping. It states that Assets = Liabilities + Equity (A = L + E). This equation illustrates how a company’s resources (assets) are financed through either debt (liabilities) or ownership interests (equity). An equivalent equation that emphasizes the origin of equity is Assets – Liabilities = Equity (A – L = E). This form highlights that equity represents the residual interest in the company after deducting its obligations from its resources. Both equations capture the essential relationship between a company’s financial sources and uses, serving as the cornerstone of accurate financial record-keeping and reporting.

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