The Accounting Equation

Whether we run General Motors or our own independent sole proprietorship we need to know the basic accounting equation.

Wikipedia, the free, on-line encyclopedia says this about it:

[It]is the foundation for the double-entry bookkeeping system. It shows how assets were financed: either by borrowing money from someone (liability) or by paying your own money (ownership equity).
Assets = Liabilities + (Shareholders or Owners equity

The formula can be rewritten: Assets - Liabilities = (Shareholders or Owners equity)Now it shows owner's interest is equal to property (assets) minus debts (liabilities). Since in a company owners are shareholders, owner's interest is called shareholder's equity. Every accounting transaction affects at least one element of the equation, but always balances.

This covers everything from acquisition of a major corporate asset to buying a cup of coffee at your local neighborhood caffeine den.

Before you spend any money on anything, think what you'll get in return for it. If the return isn't justified, don't spend the money. If buying coffee gives you $3 of enjoyment or allows you to relax or think a little differently, go for it. Also think what else you could do with that $3 which might return more than that.

Entrepreneurship is the life's blood of all my professional activities. It makes them go. And go read my mystery for free at wwww.kearneymusicschoolmurders.blogspot.com or buy it from Amazon.com more cheaply than you can print it out.