Formula To Calculate Accounting Equation :

The accounting equation is very important. It represents the relationship between the assets, liabilities, and owners equity of a person or business.This is also known as the Accounting Equation or The Balance Sheet Equation.

1) Assets

Assets are the economic resources belonging to a business.Assets is calculated as follows:

Assets = Liabilities + Capital

Examples :

Cash in hand, Cash at Bank, Receivables, Inventories, Depreciable assets, Growing Crops, Land, Investments, Goodwill, Patents & Trade Marks, Prepaid Expenses, Outstanding Incomes, etc.

2) Liabilities

Liabilities are the debts owed by the firm.Liabilities is calculated as follows:

Liabilities = Assets - Capital

Examples :

Trade Creditors, Payables, Creditors for Expenses, Loans from Bank or Other persons or institutions, Bank Overdraft, etc.

3) Capital

Capital is the value of the investment in the business by the owner(s).Capital is calculated as follows:

Capital = Assets - Liabilities

Formula To Calculate Expanded Accounting Equation :

The expanded accounting equation shows the relationships among the accounting elements. In the expanded accounting equation, the capital portion is broken down into several components: contributions, withdrawals, income, and expenses.

Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenue - Expenses - Dividends

Where,

Contributed Capital, capital provided by the original stockholders. This is also known as Paid-In Capital.

Beginning Retained Earnings, earnings not distributed to stockholders from the previous period.

Revenue, whats generated from the ongoing operation of the company.

Expenses, costs incurred to run operations of the business.

Dividends, earnings distributed to the stockholders of the company.