The Accounting Equation
Assets = liabilities + equity, and how every transaction keeps it balanced.
Best in your head · no pen, no calculator why?
Opens at level 3.
Lesson and untimed practice
Read the full lesson and try each skill without a clock. About 3 minutes to read.
skills · practice stats
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Find book equity not tried yet
worked example
A business has $94,500 of assets and $64,000 of liabilities. What is its book equity? (Use a minus sign if negative.)
Answer: $30,500.00
- Assets = liabilities + equity, so equity = $94,500 − $64,000 = $30,500.
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Solve for the missing piece not tried yet
worked example
Assets are $31,500 and equity is $15,500. What are total liabilities?
Answer: $16,000.00
- Assets = liabilities + equity, so liabilities = $31,500 − $15,500 = $16,000.
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Which way does the equation move? not tried yet
worked example
A bank lends the business $14,800 in cash. What happens to the accounting equation?
- Assets up, equity up
- Assets down, equity down
- Assets down, liabilities down
- Assets up, liabilities up
Answer: Assets up, liabilities up
- Every transaction keeps assets = liabilities + equity.
- A loan raises cash and a debt of the same size, so nothing was earned.
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Ending equity not tried yet
worked example
Equity starts the year at $25,000. The owner invests $9,000, the business earns net income of $21,000, and the owner takes $15,000 in distributions. What is ending equity?
Answer: $40,000.00
- Ending equity = start + owner investment + net income − distributions
- = $25,000 + $9,000 + $21,000 − $15,000 = $40,000.
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