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What is the accounting equation?
An equation showing the relationship among assets, liabilities, and owner's equity. In order for the equation to be correct, the two sides must be in balance. This means that the all the debits added up, must equal the credits. |
How is it used?
This equation is used to keep buisnesses in balance. Each transaction must be correctly recorded. If a transaction isn't correctly recorded, the whole equation will be off balance. |
Account Classifications
Assets are anything of value that is owned by the company. Office supplies would be an example of an asset.
A liability is an amount owed by a company. After all the value of the liabilities have been subtracted from the assets you get owner's equity.
Revenue is what you make with your business. You earn revenue from selling supplies and earning cash.
Expenses are what things your company pays for. This would be advertising costs, salary expense, payroll expense, and miscellaneous expenses.
Cost of merchandise is the amount a business pays for goods it buys to sell.
When a music store buys a guitar, the amount that guitar costs is the cost of merchandise. Then the company will sell it for a higher price to make a profit.
A liability is an amount owed by a company. After all the value of the liabilities have been subtracted from the assets you get owner's equity.
Revenue is what you make with your business. You earn revenue from selling supplies and earning cash.
Expenses are what things your company pays for. This would be advertising costs, salary expense, payroll expense, and miscellaneous expenses.
Cost of merchandise is the amount a business pays for goods it buys to sell.
When a music store buys a guitar, the amount that guitar costs is the cost of merchandise. Then the company will sell it for a higher price to make a profit.
