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What does the Accounting Equation mean?
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The Accounting Equation is a formula that sets out the relationship between Assets, Liabilities & Equity. It says that at any given moment, a business's Assets must equal its Liabilities plus Equity. You could call this the backbone of bookkeeping because the accounting equation always has to balance.
The concept at the heart of the Accounting Equation is very simple. The stuff that a business owns is equal to the stuff that a business owes. A business owns Assets and it owes Liabilities & Equity.
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