Accounting Formula

Basic Accounting Formula

Assets - Liabilities = Equity

Extended Accounting Formula

Where:

Equity = ContributedCapital + RetainedEarnings

And:

RetainedEarnings = NetIncome − Dividends

And:

Net Income = Income − Expenses

Fully Expanded, this makes:

Assets - Liabilities = ContributedCapital + Income - Expenses - Dividends

Asset

Tangible items that are owned by the company and have a value if sold e.g.

• • cash

  • equipment

  • property

  • car

Some of these assets can also have associated liabilities and incur expenses e.g. a car may have loan payments and service expenses

Reference

Liability

Something that is owed in the future:

• • Debt through borrowing

  • Interest payments

  • Tax owed but not yet paid

  • Mortgage

Reference