accounting equation

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The formula underlying a balance sheet; it can be expressed as:assets = liabilities + capital.

assets = liabilities + capital.

An increase or decrease in the total assets of a concern must be accompanied by an equal increase or decrease in the liabilities and capital in order to ensure that a balance sheet will always balance. This formula expresses an entity view of the business, whereas the proprietary view would deduct liabilities from assets to calculate the owners’ stake in the business.

Subjects: Accounting.

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