Accounting Equation

Basic Accounting Equation

Accounting is a link between Business activities & Decision-makers

An information system that 

• Identifies
• Measures
• Processes
• Communicates 
• financial information about an economic entity to help users make decisions

we described specific types of accounts that business activities fall into, namely:

• Assets: what company owns

• Liabilities: what company owes to others

• Stockholders Equity: The difference between assets and liabilities or what it owes to the owners.

• Common stock: It is a security that represents ownership in a corporation.

• Retained earnings: Amount of net income left over for the business after it has paid out dividends to its shareholders.

• Revenue is the money generated from normal business operations.

• Expense: Cost of operations incurs to generate revenue. They Say “it costs money to make money.”.

• Dividends: Paid by a company to its shareholders out of its profits (or reserves).

These are the building blocks of the basic accounting equation.