The total amount of assets of an organization over some time must be equal to the amount of ownership. The equation through which all this is proved is called the calculation equation.
The formula for the calculation equation is as follows:
A = Assets
L = Liabilities
E = Equity
Asset means financial assets. Which is owned by a business and which is used for profit. Such as merchant-owned furniture, buildings, machinery, etc.
Liability is the financial responsibility of the business. Which must be paid after a certain period of the business i.e. the third party claim on the total assets of the business is a liability.
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Excluding third-party claims from the total assets of the business, what remains is ownership, that is, the owner's claim on the total assets is ownership.
Four factors affect ownership:
- Owner investment
- Cost or expense
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