Understanding the Accounting Equation

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Accounting Equation

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Assets = Liabilities + Equity

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Assets

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Resources owned by a business

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Liabilities

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Debts or obligations of a business

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Equity

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Owner's claim after liabilities

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Assets must equal liabilities

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False

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If Assets = 100,000 and Liabilities = 60,000

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Equity = $40,000

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Equation Breakdown: A = L + E

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A: Assets, L: Liabilities, E: Equity

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If Liabilities = 30,000 and Equity = 70,000

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Assets = $100,000

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Liabilities decrease when a loan is paid off

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True