The Accounting Equation: a Quick Guide

In this video I attempt to explain the Accounting Equation in less than two minutes.

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.

Assets are the stuff that a business owns. You can think of them as resources that a business uses to operate and generate profit.

Liabilities are the stuff that a business owes to third parties. These are the debts or obligations that it needs to repay in the future.

Equity is the stuff that a business owes to its owners. It is the owner's claim on the Net Assets of a business.

⏱️TIMESTAMPS
00:00 - Intro
00:06 - What is the Accounting Equation?
00:52 - What are Assets?
01:13 - What are Liabilities?
01:30 - What is Equity?

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[AccountingStuff]

My 100th video 🎉 Time sure does fly! This is a soft reboot of the first video I ever posted on this channel. What do you think of the new format?


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⏱TIMESTAMPS
00:00 - Intro
00:06 - What is the Accounting Equation?
00:52 - What are Assets?
01:13 - What are Liabilities?
01:30 - What is Equity?

❤THANKS FOR YOUR SUPPORT
Leah Brown
Kristi Koopman
Ryan Glick
themraf1
AbdulKhaliq Ismael
Marcelo Furlan
Charles Puglisi
ANDRE Jefferson
Root ＆ Stone Landscape and Construction
Faisal Ahmed
Daniela Biddulph
John-Michael Lewis
Igor Alexis
Rocco Bouse
Glyn Pritchard-Jones
Beatriz Alvarez
TurningWest, Inc.
JIAXUAN LI
Adam Mccoy
leanne allen
David Rogers
John Fennell
Adamm Ferrier
Connie Kelley
Ligia Hernandez
Stiiiitch
John Rachow
Dameria Hutapea

[sujithin]

I had attended a 4 hour session on this and ended with a blank brain. This 2 minute video cleared my doubts.

[ljfgzbn]

I really enjoy the videos you share, they are very easy to understand. As an accounting educator, have you ever thought about a question: why aren't accounting and business, which are things we all encounter every day, taught from a young age instead of being studied as specialized courses in college? Why can't they be part of general education, for example, offered in middle or high school? I'm not talking about highly specialized accounting knowledge, but rather practical activities aimed at developing children's financial literacy and business acumen. This question has been bothering me, and I'm curious to know your thoughts. It would be great if you could make a video sharing your ideas.

[Janecas]

I follow you for so long and your talent to easily share your knowledge with common mortals is amazing.

[sam.c.dola]

Congratulations James on reaching out the 100th video🎉
I wish you to go long and it will reach 1000 or even more🙂

[dubkmcaidan]

I recommended your channel to my niece, and now she's hooked.

[mukahazah]

Beautiful! 🎉
Many thanks to you...maybe in the next video on the Accounting Equation, you could also talk about how one could use the Accounting Equation to understand concepts of debits and credits : Assets(Left Side...Debit) = Liabilities(Right side...Credit) + Equity (Right side...Credit).

Once again, many thanks!❤

[shivmishra]

congrats!! man can u make a video on how these (p&l, dep, etc.) interlinked to each other

[osamaalbdrany]

المحاسبين الاجانب والعرب جميعهم اشخاص جيدين ويحبون يظهرون العلم لغيرهم

[MaxwellHendin-pyll]

Hello James,
Thank you for all of your videos. I looked through your videos but did not find anything on Time Value of Money concepts (present value future value etc). With your skills and abilities I’m sure any future production on the subject would be top notch.
Thank you.
Maxwell

[magnitzz]

Hi James I’m currently 1 hour in to your 5 hour course video and surprisingly I’m not bored out my mind😂👍 with AI do you think the account profession will change and if so how much. Thanks and great and easy to digest vids👌

[mzvtithesleaze]

Hey man, really love your work. You've helped me a lot in my journey as a finance personnel. I was in Accounting when i first discovered you're page, now I'm currently working as an Audit Junior and i recall in one of your previous videos you mentioned you had a past life as an auditor. Do you think you can make some auditing basics videos like you did with the accounting basics?

[leahdavis]

I just found your channel. I’m so looking forward to working through your videos.

I do have a question. I use Quicken. When I was working I put pretax salary into a 401K. Now that I’m retired I am taking withdrawals. If I move the money from the 401K account to my checking account it just becomes cash. IRS considers it income. What transaction or entry do I need to make to turn it into income before I spend it from the checking account?

I hope that was clear and if you are able to answer me (not questioning your ability, just availability) I would be very appreciative. Thank you.

[SenthamizhselviVenkatesan]

Hey James! 👋 thank you for sharing your knowledge and if possible can you update about valuation of closing stock and inventories.

[rmcubcw]

Hello from Russia, James, your videos have helped me in many ways - you are the best in your field. I want to ask you to make a video about statement of owners equity, I think it is going to be useful!

[manudagunawardana]

Hello james, congrats on your 100th video!, could you make videos on correction of errors and control accounts too

[Tanagumch]

please make a video on sub ledger
and what if i want to open individual employee salary a/c, how i'm gonna post it into the general ledger

[erngumh]

Hi James
I love your channel! Is there a time that you will show some retail accounting. Specifically regarding Fifo/Lifo, inventories, etc?

[xcuifep]

i'm following u for so long and thankyou for all the videos, a little request can you plz make a video on control account asap ?🙃

[LeaveMeAloneBleez]

hi man I will be going to uni next year, but I have 2 majors to choose from and I HAVE to choose one now, it's either accounting or finance, personally, I am more interested in finance, but I heard that finding a job is harder and accounting got more job opportunities, I want to follow my hearth but I don't want to become jobless after getting some degree since I will be studying abroad to china next year