Accounting Equation and Double-Entry Accounting

The accounting equation $Assets = Liabilities + Owner's\ Equity$ represents the fundamental relationship between a company's economic resources and how they are financed. Assets include resources like cash, inventory, and equipment that the company owns. Liabilities represent financial obligations to external parties such as loans and accounts payable. Owner's equity is the residual interest of the owners after liabilities are deducted from assets, encompassing capital and retained earnings. Double-entry accounting is a systematic recording method where every financial transaction is recorded with equal debits and credits, ensuring the accounting equation remains balanced.