Concept And Meaning Of Accounting Equation

One of the important features of double-entry book-keeping is that it makes a twofold or double effect. It implies that every financial transaction has a simultaneous effect on two separate accounts. Such an effect is always of equal amount. This gives rise to the fundamental principle of double-entry system. That is 'For every debit, there is a corresponding credit or vice verse', or Debit= Credit and Credit= Debit. With this fundamental principle, a relationship between three basic elements of accounting can be developed. The three basic elements of accounting equation are assets, capital and liabilities. The relationship between the elements can be shown in the form of a mathematical equation which is called accounting equation. The accounting equation is also called balance sheet equation. It represents a mathematical expression of the balance sheet items of the business. Formally, therefore, accounting equation is a statement of equality between total assets and total claims or equities of the business mathematically.
Accounting equation can be expressed in the following ways.

Assets = Total claims or equities
Or,
Assets = Owners' claim or equity+ Outsiders' claim or equity
Or,
Assets = Capital + Liabilities
Or,
Capital = Assets - Liabilities
Or,
Liabilities = Assets - Capital