What is the accounting equation?

• A = L + OE
• Expresses the relationship between assets of an entity and how those assets are financed 
• Assets are resources controlled by an entity 
• They can financed in two ways:
• By outside fund providers or liabilities
• By inside funds or equity
• Liabilities and equity represent the claims against the entity’s assets

• For instance, if you buy a phone that cost $1000, you can finance it by your own savings of $700 and borrow $300 from your parents. 
• $1000 phone is your asset
• $700 savings is owner’s equity
• $300 debt is your liability 
• A = L + OE
• $1000 = $300 + $700  

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