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Accounting Equation

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Definition: The accounting equation is stated as Assets - Liabilities = Shareholder Equity. You can also rearrange the components of the accounting equation to Shareholder Equity + Liability = Assets.

Put simply, the accounting equation is the relationship necessary to balance the books of a company in the double entry bookkeeping system that has been the standard of quality management for centuries. It is easiest to understand when studying a balance sheet.

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