What is the basic accounting formula?

http://en.wikipedia.org/wiki/Accounting_equation

The basic accounting formula is also known as the balance sheet equation or the fundamental accounting equation. It is:

Assets = Liabilities + Equity

This formula represents the relationship between a company's assets (what it owns), liabilities (what it owes), and equity (the owner's or shareholder's investment in the company).

To understand how this formula works, let's break it down:

1. Assets: These are the economic resources owned by the company, including cash, accounts receivable, inventory, land, buildings, and equipment.

2. Liabilities: These are the debts or obligations of the company, including loans, accounts payable, and other debts owed to creditors.

3. Equity: This represents the owner's or shareholder's investment in the company. It includes the initial capital invested by the owner(s), retained earnings (profits reinvested into the business), and any additional contributions or withdrawals made by the owner(s).

The equation emphasizes that a company's assets must always equal the sum of its liabilities and equity. This ensures that the company's resources are properly accounted for and that the financial statements are in balance.

To determine the values for assets, liabilities, and equity, you would need to review the company's financial records, such as its balance sheet, income statement, and statement of cash flows. These documents provide the necessary information to calculate and balance the accounting equation.