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accounts payable

Creating a separate list of the sum of all liabilities on the balance sheet. An asset is a resource that is owned or controlled by the company to be used for future benefits. Some assets are tangible like cash while others are theoretical or intangible like goodwill or copyrights. Things such as utility bills, land payments, employee salaries, and insurance – those are all examples of liabilities. Company ZZK plans to buy office equipment that is $500 but only has $250 cash to use for the purchase. Rebekiah received her BBA from Georgia Southwestern State University and her MSM from Troy University.


The equation aims to determine business progress on any given day. It tells us how much money any company has in the Bank and how likely it is for the business to meet all its financial obligations.

The Credit Side

Metro issued a check to Office Lux for $300 previously purchased supplies on account. We want to increase the asset Supplies and increase what we owe with the liability Accounts Payable. Metro purchased supplies on account from Office Lux for $500. We want to increase the asset Cash and increase the equity Common Stock. In this scenario, money from cake sale will be deposited in the bank. But, it will never be the case that one account is increasing and other decreasing, otherwise the equation will not balance. Both the accounts lie on the left-hand side of the equation.

What is the basic equation of accounting?

The basic equation of accounting is Assets = Liabilities + Owner’s Equity


​liabilities are all current and long-term debts and obligations

owner’s equity is the sum of assets that are available to shareholders after all liabilities are paid

He term Equation refers to two equations that are basic and central in double-entry accrual accounting systems. The term in fact has meaning only in accrual accounting. It does not apply in cash-based, single entry accounting. We will increase the expense account Salaries Expense and decrease the asset account Cash. We want to decrease the liability Accounts Payable and decrease the asset cash since we are not buying new supplies but paying for a previous purchase. In the following tutorial, we’ll look at some problems of recording transactions to get some practice at using the full accounting equation.

Accounting Topics

It differentiates between business assets, liabilities, and equity. It forms a clear picture of any business’s financial situation.

The initial contribution to the is recorded in the same way but with the new amount, as shown in Figure 4. Business professionals who understand core business concepts and principles fully and precisely always have the advantage, while many others are not so well-prepared. Rely on the premier business encyclopedia to sharpen your grasp of essential business concepts, terms, and skills. Free AccessBusiness Case GuideClear, practical, in-depth guide to principle-based case building, forecasting, and business case proof.

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