{"id":64,"date":"2024-09-06T16:46:05","date_gmt":"2024-09-06T16:46:05","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/introduction-to-the-basic-accounting-equation\/"},"modified":"2024-09-06T16:46:05","modified_gmt":"2024-09-06T16:46:05","slug":"introduction-to-the-basic-accounting-equation","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/introduction-to-the-basic-accounting-equation\/","title":{"raw":"Introduction to the Basic Accounting Equation","rendered":"Introduction to the Basic Accounting Equation"},"content":{"raw":"\n

What you'll learn to do: state the accounting equation<\/h2>\nThe cornerstone of accounting, as it\u2019s been practiced since Pacioli documented it back in 1494, is the accounting equation. It\u2019s a relatively simple mathematical identity that looks like this:\n

[latex]\\text{A}=\\text{L}+\\text{OE}[\/latex]<\/p>\nThe A stands for assets, the L stands for liabilities, and the OE stands for owner\u2019s equity.\n\nWhile the accounting equation only includes three categories, there are actually five that financial accountants track over time:\n

    \n \t
  1. Assets (A):<\/strong> Anything of value that a business owns.<\/li>\n \t
  2. Liabilities (L):<\/strong> Debts that a business owes; claims on assets by outsiders.<\/li>\n \t
  3. Owner\u2019s Equity (OE):<\/strong> Worth of the owners of a business; claims on assets by the owners.<\/li>\n \t
  4. Revenues (Rev):<\/strong> Income that results when a business operates and generates sales.<\/li>\n \t
  5. Expenses (Exp):<\/strong> Costs associated with earning revenue.<\/li>\n<\/ol>\nIn this section, we\u2019ll be exploring each of those items.\n\nLet\u2019s move ahead so that you can gain a more detailed understanding of the basic accounting equation and its components.\n","rendered":"

    What you’ll learn to do: state the accounting equation<\/h2>\n

    The cornerstone of accounting, as it\u2019s been practiced since Pacioli documented it back in 1494, is the accounting equation. It\u2019s a relatively simple mathematical identity that looks like this:<\/p>\n

    [latex]\\text{A}=\\text{L}+\\text{OE}[\/latex]<\/p>\n

    The A stands for assets, the L stands for liabilities, and the OE stands for owner\u2019s equity.<\/p>\n

    While the accounting equation only includes three categories, there are actually five that financial accountants track over time:<\/p>\n

      \n
    1. Assets (A):<\/strong> Anything of value that a business owns.<\/li>\n
    2. Liabilities (L):<\/strong> Debts that a business owes; claims on assets by outsiders.<\/li>\n
    3. Owner\u2019s Equity (OE):<\/strong> Worth of the owners of a business; claims on assets by the owners.<\/li>\n
    4. Revenues (Rev):<\/strong> Income that results when a business operates and generates sales.<\/li>\n
    5. Expenses (Exp):<\/strong> Costs associated with earning revenue.<\/li>\n<\/ol>\n

      In this section, we\u2019ll be exploring each of those items.<\/p>\n

      Let\u2019s move ahead so that you can gain a more detailed understanding of the basic accounting equation and its components.<\/p>\n","protected":false},"author":6,"menu_order":9,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Introduction to the Accounting Equation\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning \",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":55,"module-header":"","content_attributions":[{"type":"original","description":"Introduction to the Accounting Equation","author":"Joseph Cooke","organization":"Lumen Learning ","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":0,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64\/revisions"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/55"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/64\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=64"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=64"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=64"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=64"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}