The accounting equation defines a company’s total assets as the sum of its liabilities and shareholders’ equity. It's the foundation of the double-entry accounting system.

Basic Accounting Equation The basic accounting equation reflects the principle of duality in that each accounting transaction is recorded using both debit and credit entries.

The expanded accounting equation is derived from the accounting equation and illustrates the different components of stockholder equity in a company.

Understanding these basic accounting concepts can help you make smarter financial decisions in the long run, as well as in your day-to-day operations.