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The accounting equation summarizes the essential nature of double-entry system of accounting. Under which, the debit always
equal to credit, and assets always equal to the sum of equities and liabilities. Accounting equation can be simply defined as a
relationship between assets, liabilities and owner’s equity in the business.
Total debits always equal to total credits -Total Debits = Total Credits
The accounting equation represents an extension of the ‘Basic Equation’ to include another fundamental rule that applies to every
accounting transaction when a double-entry system of bookkeeping is used by the businesses.
Debits = Credits
This Accounting Equation summarizes the following:
Debit and Credit should be equal for every event that impacts accounts.
Across any specified timespan, the sum of all debit entries must equal the total of all credit entries, meaning the same
balance applies for every pair of ‘entries’ that follows a transaction.
This equation serves to provide an essential form of built-in error checking mechanism for accountants while preparing the
financial statements.