Anaccounting equation is a basic principle of accounting that represents a company’s assets, liabilities and owner’s equity in relationship. It is written as:

Assets = Liabilities + Owner’s Equity.

This equation makes sure that both a company’s financial statements are balanced. It means that what the business has (assets), may or may not be financed by money that a business borrows (liabilities) or by an owner’s investment (equity). This formula is used to track financial position and the basis of double entry accounting, where a transaction affects at least two accounts to balances the equation.