Abstract

This resource provides a very basic representation of one of the simplist but foundational organisms of financial reporting, the accounting equation. This document provides sustinct information from [ACCOUNTING-EQUATION] Elements of Financial statements which is published by the FASB.

1. Introduction

This resource specifies the common practice definition of the accounting equation. The purpose of this resourcse is to explicit, clear, and complete.

The accounting equation, also called the fundamental accounting equation and the balance sheet equation, is the foundation for the double-entry bookkeeping system and the cornerstone of accounting science.

1.1 Elements

The following provides the common practice, informal defintion of the accounting equation. [ACCOUNTING-EQUATION].

Assets
Assets are probable future sacrifices of econmic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions.

DEBIT

as of point in time

Liabilities
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions.

CREDIT

as of point in time

Equity
Equity or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest. In a not-for-profit organization, which has no ownership interest in the same sense as a business enterprise, net assets is divided into three classes based on the presence or absense of donor-imposed restrictions: permanentaly restricted, temporarily restricted, and unrestricted net assets.

CREDIT

as of point in time

1.2 Interrelationships

The following provides information about the formal interrelationships between the elements of the accounting equation [ACCOUNTING-EQUATION] or are implied and understood common practice.

Assets = Liabilities + Equity
The accounting equation; the sum of Assets is equal to the sum of Liabilities plus the sum of Equity. The accounting equation is well understood common practice. For additional information see: Wikipedia, Accounting Equation

1.3 Statements

The following resource provides information about the cornerstone of financial concepts, the accounting equation. [ACCOUNTING-EQUATION]. The accounting equation is well understood

Statement of Financial Position
A Statement of Financial Position (a.k.a. Balance Sheet) is used to report the elements Assets, Liabilities and Equity.

1.4 Examples

The following is an example of a balance sheet which contains the elements of the accounting equation which conform to the interrelationships of the elements:

Statement of Financial Position

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1.6 Types

The following graphic shows types and subtypes (a.k.a. general-special assocations, wider-narrower associations) of the elements of financial statements:

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1.7 References

The following is a summary of normative and informative references helpful in understanding this information:

1.7.1 Normative references

[ACCOUNTING-EQUATION]
Accounting Equation. Financial Accounting Standards Board (FASB). 2004. URL: https://en.wikipedia.org/wiki/Accounting_equation
[AE-PROOF]
PROOF. AE PROOF. 2024. URL: https://auditchain.infura-ipfs.io/ipfs/QmPeD6DrM8xsgwiSnwo6JR1njJmurDgBkQQf1kLAooJRwh/

1.7.2 Informative references

[AE-MODEL]
Accounting Equation MODEL. Charles Hoffman, CPA. 03 June 2024. URL: http://xbrlsite.com/seattlemethod/platinum/ae/ae_ModelStructure.html
[REFERENCE-IMPLEMENTATION]
Accounting Equation Reference Implementation. Charles Hoffman, CPA. 03 June 2024. URL: http://xbrlsite.com/seattlemethod/platinum/ae/index.html
[DOCUMENTATION]
Accounting Equation Documentation. Charles Hoffman, CPA. 03 June 2024. URL: http://xbrlsite.com/seattlemethod/platinum/ae/AE-Impediments.pdf