Accounting equations are used to calculate the value of a company’s assets, liabilities, and equity. T-Accounts are then created that show the values of various accounts, including cash and receivables, inventory, and prepaid expenses.
Accounting Equation Formula:
Assets + Liabilities = Equity
Assets: Cash, Accounts Receivable, Inventory
Liabilities: Accruals, Capital Lease Obligations, Accrued Interest, and Other Liabilities
Equity: Net Worth + Retained Earnings