User:Zvi~enwiki/Meaning of accounting

Meaning of the accounting equation
The value of a company can be understood simply as the useful assets that ownership of a company entitles one to claim. This value is known as Owners' Equity. Some assets of a company, however, cannot be claimed as Equity by the owners of a company because other people have legal claim to them - for example if the company has borrowed money from the bank. The value of a resource claimable by a non-owner is called a Liability. All of the Assets of a company can be claimed by someone, whether owner or not, so the sum of a company's Equity and its Liabilities must equal the value of its Assets. Thus the accounting equation describes what portion of a company's assets can by claimed by the owners.

Various account types are classified as 'credit' or 'debit' depending on the role they play in the accounting equation.

Assets = Equity + Liabilities (move assets to the right)

0 = -Assets + Equity + Liabilities

or 0 = (-) Assets                        + Owners' Equity              (+) Liabilities .      _____________________________/\____________________________    .           .      /    + Retained Earnings                  (+) Common Stock  \. .   _________________/\_______________________________      .         .           .   / (-) Expenses     (+) Beginning Retained Earnings \. .          .     (-) Dividends    (+) Revenue. .    \________________________/  \___________________________________________________/       (-)increased by debits                       (+)increased by credits