Is The Balance Sheet Represent The Accounting Equation?

Which Financial Statement Is Based On The Accounting Equation?

Yes, the Balance Sheet represents Basic or Fundamental Accounting Equation which shows the relationship between Assets, Liabilities and Equity. Whole Accounting Under Double Entry System revolves around this equation. This Accounting Equation is written as follows:

Assets = Liabilities + Owner’s Equity (Equity)

Here, Assets are the resources acquired a business as a result of Liabilities (External Sources of Finance) and Owner’s Equity or Equity that are Internal Sources of Finance for a business. Assets during the accounting period are always equal to the sum of liabilities and owners' equity or simply equity. The left side of balance sheet or Statement of Financial Position represent Total Assets while right side shows total liabilities and owners' equity. All the transactions occurred during the accounting period affect either left side or right side or both left and right at the same time but at the end result, the accounting equation remains in balance which means both sides of balance sheet are also equalized.