Course Outline
Join PRO

Accounting Equation (Crossword Puzzles)

Author:
Harold Averkamp, CPA, MBA

Accounting Equation

Open Online Open PDF

The accounting equation is Assets = Liabilities + Owner’s (Stockholders’) Equity. The accounting equation should remain in balance at all times because of the double-entry system of accounting or bookkeeping. (This system means every transaction will affect at least two accounts in the general ledger.)

Here are some examples of how the accounting equation remains in balance:

  • An owner’s investment into the company will increase the company’s assets and will also increase owner’s equity

  • When the company borrows money from its bank, the company’s assets increase and the company’s liabilities increase

  • When the company repays the loan, the company’s assets decrease and the company’s liabilities decrease

  • If the company pays cash for a new delivery van, one asset (cash) will decrease and another asset (vehicles) will increase

  • If a company provides a service to a client and immediately receives cash, the company’s assets increase and the company’s owner’s equity will increase because it has earned revenue

  • If the company provides a service and allows the client to pay in 30 days, the company has increased its assets (Accounts Receivable) and has also increased its owner’s equity because it has earned service revenue

  • If the company runs a radio advertisement and agrees to pay later, the company incurs an expense that reduces owner’s equity and increases its liabilities

From our examples, you can see that owner’s equity increased when the owner made an investment in the business and also when revenues were earned. Owner’s equity decreased when the owner withdrew assets from the business and when expenses were incurred. This leads us to the expanded accounting equation:

Assets = Liabilities + Owner’s Capital + Revenues – Expenses – Draws

Advance Your Accounting and Bookkeeping Career

Must Watch image

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video
Certificates of Achievement

Earn Our Certificates of Achievement

Certificates of Achievement
  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Accounts Receivable and Bad Debts Expense
  • Depreciation
  • Payroll Accounting
View PRO Plus Features

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,651 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Bookkeeping Study Guide
Managerial Study Guide
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Accounts Receivable and Bad Debts Expense
Certificate - Depreciation
Certificate - Payroll Accounting
Motivational Badges
Motivational Points
Medal Rankings
Activity Streaks
Custom Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 2,651 Testimonials

Take the Tour Join Pro Upgrade to Pro Plus