ACCOUNTING EQUATIONThe accounting equation is a fundamental principle in accounting that represents the relationship between a company's assets, liabilities, and equity. It is expressed as:Assets = Liabilities + EquityHere's a breakdown of each component:Assets: These are economic resources owned by a business that provide future benefits. Assets can be tangible, such as cash, inventory, property, and equipment, or intangible, such as patents, copyrights, and trademarks. In essence, assets represent what the company owns.Liabilities: Liabilities are obligations that the company owes to external parties. These obligations can include debts, loans, accounts payable, and other financial responsibilities. Liabilities represent what the company owes to others.Equity: Equity represents the residual interest in the assets of the entity after deducting liabilities. It is essentially the owner's claim on the company's assets. Equity can be further broken down into contributed capital (such as common stock) and retained earnings (profits kept in the business).The accounting equation must always balance, meaning that the total assets must equal the total liabilities plus equity. This balance ensures that the company's resources (assets) are financed either by borrowing (liabilities) or by contributions from shareholders (equity).The equation forms the basis for double-entry bookkeeping, where every financial transaction affects at least two accounts and ensures that the equation remains in bCertainly! The accounting equation is the foundation of double-entry accounting, which is the system used by businesses to record financial transactions. Here's a breakdown of each component:Assets: These are resources that a company owns or controls, which can be tangible (like cash, inventory, property, and equipment) or intangible (like patents, trademarks, and goodwill). Assets represent what the company owns and uses to generate revenue.Liabilities: These are obligations or debts that a company owes to external parties, such as loans, accounts payable, or bonds payable. Liabilities represent the claims against the company's assets by creditors or other external entities.Equity: Also known as owner's equity or shareholder's equity, equity represents the residual interest in the assets of the company after deducting liabilities. It reflects the owner's or shareholders' stake in the company's assets.