Accounting equation
The accounting equation states that assets equal liabilities plus equity. Each transaction preserves this relationship when recorded correctly, although it can change several components. Equity is the residual interest after liabilities are deducted. If the business then buys equipment for 400 cash, one asset rises and another falls by the same amount, leaving total assets unchanged.
Worked example
A business borrows 1,000 in cash: assets and liabilities each rise by 1,000.
Common mistake
Assuming that equal totals prove every transaction was recorded correctly.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |